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U.S. Securities and Exchange Commission

Washington, D.C. 20549



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Form 10-QSB



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2005



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------------



For the transition period from  to



Commissions file number 0-11480



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BIOVEST INTERNATIONAL, INC.

(Exact name of small business issuer as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 41-1412084                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)



8500 Evergreen Blvd.
NW, Minneapolis, Minnesota 55433

(Address of principal executive offices)



Issuers telephone number: 763-786-0302



---



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 ̈



At March 31, 2005, there were 54,240,505 shares of the registrants Common Stock, $0.01 par value, issued and
outstanding.



Transitional Small Business Disclosure Format

(Check one)    Yes ̈No  x



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##### Table of Contents

INDEX

BIOVEST INTERNATIONAL, INC.



|                              |  |                                                                    |  |                                                                                                           |  |     
|----------------------------- |  | ------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                    |  |                                                                                                           |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                   
|                              |  |                                                                   
|                              |  | ITEM 1. Financial Statements                                       |  |                                                                                                          
|                              |  |                                                                    | 
|                              |  |                                                                    |  | Condensed Balance Sheets as of March 31, 2005 (unaudited) and September 30, 2004 (audited)                |  | 3   
|                              |  |                                                                    | 
|                              |  |                                                                    |  | Condensed Statements of Operations for the Three and Six Months Ended March 31, 2005 and 2004 (unaudited) |  | 4   
|                              |  |                                                                    | 
|                              |  |                                                                    |  | Condensed Statement of Stockholders Deficit for the Six Months Ended March 31, 2005 (unaudited)          |  | 5   
|                              |  |                                                                    | 
|                              |  |                                                                    |  | Condensed Statements of Cash Flows for the Six Months Ended March 31, 2005 and 2004 (unaudited)           |  | 6   
|                              |  |                                                                    | 
|                              |  |                                                                    |  | Notes to Condensed Financial Statements                                                                   |  | 7   
|                              |  |                                                                   
|                              |  | ITEM 2. Managements Discussion and Analysis or Plan of Operations |  | 15                                                                                                       
|                              |  |                                                                   
|                              |  | ITEM 3. Controls and Procedures                                    |  | 20                                                                                                       
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                   
|                              |  |                                                                   
|                              |  | ITEM 1. Legal Proceedings                                          |  | 21                                                                                                       
|                              |  |                                                                   
|                              |  | ITEM 2. Changes in Securities                                      |  | 22                                                                                                       
|                              |  |                                                                   
|                              |  | ITEM 6. Exhibits and Reports on Form 8-K                           |  | 23                                                                                                       
|                              |  |                                                                   
|                              |  | Signatures                                                         |  | 24                                                                                                       



2



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BIOVEST INTERNATIONAL, INC.

CONDENSED BALANCE SHEETS



|                                                                                                                                                                                       |  |                           |             |   |                             |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | --------------------------- | - | ----------- | -
|                                                                                                                                                                                       |  | March 31, 2005(Unaudited) |             |   | September 30,2004 (Audited) |  
|ASSETS                                                                                                                                                                                 |  |                           |             |   |                             |   |             |  
|Current Assets:                                                                                                                                                                        |  |                           |             |   |                             |   |             |  
|Cash                                                                                                                                                                                   |  | $                         | 39,000      |   |                             | $ | 204,000     |  
|Accounts receivable, net of $30,000 and $19,000 allowance for doubtful accounts March 31, 2005 and September 30, 2004,
respectively                                                    |  |                           | 969,000     |   |                             |   | 102,000     |  
|Unbilled receivables                                                                                                                                                                   |  |                           | 24,000      |   |                             |   | 75,000      |  
|Inventories                                                                                                                                                                            |  |                           | 294,000     |   |                             |   | 274,000     |  
|Prepaid expenses and other current assets                                                                                                                                              |  |                           | 146,000     |   |                             |   | 141,000     |  
|                                                                                                                                                                                       |  |                           |             |   |                             |   |             |  
|Total current assets                                                                                                                                                                   |  |                           | 1,472,000   |   |                             |   | 796,000     |  
|                                                                                                                                                                                       |  |                          
|Property, plant and equipment, net                                                                                                                                                     |  |                           | 944,000     |   |                             |   | 1,100,000   |  
|Other assets:                                                                                                                                                                          |  |                           |             |   |                             |   |             |  
|Inventories                                                                                                                                                                            |  |                           |            |   |                             |   | 289,000     |  
|Patents and trademarks, net                                                                                                                                                            |  |                           | 454,000     |   |                             |   | 514,000     |  
|Goodwill                                                                                                                                                                               |  |                           | 2,131,000   |   |                             |   | 2,131,000   |  
|                                                                                                                                                                                       |  |                           |             |   |                             |   |             |  
|                                                                                                                                                                                       |  | $                         | 5,001,000   |   |                             | $ | 4,830,000   |  
|                                                                                                                                                                                       |  |                           |             |   |                             |   |             |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                                  |  |                           |             |   |                             |   |             |  
|Current liabilities:                                                                                                                                                                   |  |                           |             |   |                             |   |             |  
|Current maturities of long-term debt                                                                                                                                                   |  | $                         | 326,000     |   |                             | $ | 401,000     |  
|Accounts payable (including $363,000 due to affiliate at March 31, 2005)                                                                                                               |  |                           | 1,211,000   |   |                             |   | 1,725,000   |  
|Customer deposits                                                                                                                                                                      |  |                           | 94,000      |   |                             |   | 102,000     |  
|Accrued liabilities:                                                                                                                                                                   |  |                           |             |   |                             |   |             |  
|Compensation and related taxes                                                                                                                                                         |  |                           | 532,000     |   |                             |   | 595,000     |  
|Other                                                                                                                                                                                  |  |                           | 751,000     |   |                             |   | 988,000     |  
|Unearned revenues                                                                                                                                                                      |  |                           | 24,000      |   |                             |   | 106,000     |  
|                                                                                                                                                                                       |  |                           |             |   |                             |   |             |  
|Total current liabilities                                                                                                                                                              |  |                           | 2,938,000   |   |                             |   | 3,917,000   |  
|                                                                                                                                                                                       |  |                          
|Long term debt, less current maturities:                                                                                                                                               |  |                           |             |   |                             |   |             |  
|Related party                                                                                                                                                                          |  |                           | 1,310,000   |   |                             |   | 1,310,000   |  
|Non-related party                                                                                                                                                                      |  |                           | 4,058,000   |   |                             |   | 3,940,000   |  
|                                                                                                                                                                                       |  |                           |             |   |                             |   |             |  
|                                                                                                                                                                                       |  |                           | 8,306,000   |   |                             |   | 9,167,000   |  
|                                                                                                                                                                                       |  |                           |             |   |                             |   |             |  
|Commitments and contingencies (Note 9)                                                                                                                                                 |  |                           |            |   |                             |   |            |  
|                                                                                                                                                                                       |  |                          
|Stockholders deficit:                                                                                                                                                                 |  |                           |             |   |                             |   |             |  
|Preferred stock, $.01 par value, 50,000,000 and 10,000,000 shares authorized in March and September, respectively; 0 and 8,021,886 issued and
outstanding, respectively                |  |                           |            |   |                             |   | 80,000      |  
|Common stock, $.01 par value, 300,000,000 and 50,000,000 shares authorized in March and September, respectively; 54,240,505 and 38,196,733
shares issued and outstanding, respectively |  |                           | 542,000     |   |                             |   | 382,000     |  
|Additional paid-in capital                                                                                                                                                             |  |                           | 33,275,000  |   |                             |   | 33,352,000  |  
|Accumulated deficit                                                                                                                                                                    |  |                           | (32,504,000 | ) |                             |   | (27,164,000 | )
|Stockholder note receivable                                                                                                                                                            |  |                           | (4,618,000  | ) |                             |   | (10,987,000 | )
|                                                                                                                                                                                       |  |                           |             |   |                             |   |             |  
|Total stockholders deficit                                                                                                                                                            |  |                           | (3,305,000  | ) |                             |   | (4,337,000  | )
|                                                                                                                                                                                       |  |                           |             |   |                             |   |             |  
|                                                                                                                                                                                       |  | $                         | 5,001,000   |   |                             | $ | 4,830,000   |  
|                                                                                                                                                                                       |  |                           |             |   |                             |   |             |  



The accompanying
footnotes are an integral part of these condensed financial statements.



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##### Table of Contents

BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2005 AND 2004

(unaudited)



|                                      |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|------------------------------------- |  | -------------------------------- | ---------- | - | -------------------------------- | - | ---------- | ------------------------------- |  | - | ------------------------------ | - |  | - | ---------- | -
|                                      |  | Three MonthsEnded March 31, 2005 |            |   | Three MonthsEnded March 31, 2004 |   |            | Six Months Ended March 31, 2005 |  |   | Six MonthsEnded March 31, 2004 |  
|Revenues:                             |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|Cell culture products and services    |  | $                                | 323,000    |   |                                  | $ | 693,000    |                                 |  | $ | 636,000                        |   |  | $ | 1,475,000  |  
|National cell culture center          |  |                                  | 279,000    |   |                                  |   | 337,000    |                                 |  |   | 527,000                        |   |  |   | 678,000    |  
|Instrument and disposables            |  |                                  | 935,000    |   |                                  |   | 719,000    |                                 |  |   | 1,447,000                      |   |  |   | 1,419,000  |  
|R & D services                        |  |                                  |           |   |                                  |   | 105,000    |                                 |  |   |                               |   |  |   | 105,000    |  
|                                      |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|Total revenues                        |  |                                  | 1,537,000  |   |                                  |   | 1,854,000  |                                 |  |   | 2,610,000                      |   |  |   | 3,677,000  |  
|                                      |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|Operating costs and expenses:         |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|Cost of sales                         |  |                                  | 1,015,000  |   |                                  |   | 1,524,000  |                                 |  |   | 1,934,000                      |   |  |   | 3,286,000  |  
|Inventory write-down                  |  |                                  | 31,000     |   |                                  |   |           |                                 |  |   | 350,000                        |   |  |   |           |  
|Research and development              |  |                                  | 2,327,000  |   |                                  |   | 1,177,000  |                                 |  |   | 4,250,000                      |   |  |   | 2,094,000  |  
|Marketing, general and administrative |  |                                  | 650,000    |   |                                  |   | 977,000    |                                 |  |   | 1,212,000                      |   |  |   | 1,937,000  |  
|                                      |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|Total operating costs and expenses    |  |                                  | 4,023,000  |   |                                  |   | 3,678,000  |                                 |  |   | 7,746,000                      |   |  |   | 7,317,000  |  
|                                      |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|Loss from operations                  |  |                                  | (2,486,000 | ) |                                  |   | (1,824,000 | )                               |  |   | (5,136,000                     | ) |  |   | (3,640,000 | )
|                                      |  |                                  |            |  
|Other income (expense):               |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|Interest expense, net                 |  |                                  | (100,000   | ) |                                  |   | (104,000   | )                               |  |   | (204,000                       | ) |  |   | (213,000   | )
|Other expense                         |  |                                  |           |   |                                  |   |           |                                 |  |   |                               |   |  |   | (15,000    | )
|                                      |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|                                      |  |                                  | (100,000   | ) |                                  |   | (104,000   | )                               |  |   | (204,000                       | ) |  |   | (228,000   | )
|                                      |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|Net loss                              |  | $                                | (2,586,000 | ) |                                  | $ | (1,928,000 | )                               |  | $ | (5,340,000                     | ) |  | $ | (3,868,000 | )
|                                      |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|Net loss per common share:            |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|Basic and diluted                     |  | $                                | (.05       | ) |                                  | $ | (.05       | )                               |  | $ | (.12                           | ) |  | $ | (.10       | )
|                                      |  |                                  |            |  
|Weighted average shares outstanding:  |  |                                  |            |   |                                  |   |            |                                 |  |   |                                |   |  |   |            |  
|Basic and diluted                     |  |                                  | 47,466,468 |   |                                  |   | 38,160,733 |                                 |  |   | 42,780,668                     |   |  |   | 38,160,733 |  



The accompanying
footnotes are an integral part of these condensed financial statements.



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BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENT OF STOCKHOLDERS DEFICIT

FOR THE SIX MONTHS ENDED MARCH 31, 2005

(unaudited)



|                                          |  |                 |   |  |              |         |                          |        |            |                    |   |         |                             |   |            |                           |  |   |             |   |  |   |             |   |  |   |            |  
|----------------------------------------- |  | --------------- | - |  | ------------ | ------- | ------------------------ | ------ | ---------- | ------------------ | - | ------- | --------------------------- | - | ---------- | ------------------------- |  | - | ----------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                          |  | Preferred Stock |   |  | Common Stock |         | AdditionalPaid InCapital |        |            | AccumulatedDeficit |   |         | StockSubscriptionReceivable |   |            | TotalStockholdersDeficit | 
|                                          |  | Shares          |   |  | Amount       |         |                          | Shares |            | Amount             |   |         |                             |  
|Balances at September 30, 2004            |  | 8,021,886       |   |  | $            | 80,000  |                          |        | 38,196,733 |                    | $ | 382,000 |                             | $ | 33,352,000 |                           |  | $ | (27,164,000 | ) |  | $ | (10,987,000 | ) |  | $ | (4,337,000 | )
|Collection on Stockholder note receivable |  |                |   |  |              |        |                          |        |           |                    |   |        |                             |   |           |                           |  |   |            |   |  |   | 6,369,000   |   |  |   | 6,369,000  |  
|Stock-based compensation                  |  |                |   |  |              |        |                          |        |           |                    |   |        |                             |   | 3,000      |                           |  |   |            |   |  |   |            |   |  |   | 3,000      |  
|Conversion of shares                      |  | (8,021,886      | ) |  |              | (80,000 | )                        |        | 16,043,772 |                    |   | 160,000 |                             |   | (80,000    | )                         |  |   |            |   |  |   |            |   |  |   |           |  
|Net loss                                  |  |                |   |  |              |        |                          |        |           |                    |   |        |                             |   |           |                           |  |   | (5,340,000  | ) |  |   |            |   |  |   | (5,340,000 | )
|                                          |  |                 |   |  |              |         |                          |        |            |                    |   |         |                             |   |            |                           |  |   |             |   |  |   |             |   |  |   |            |  
|Balances at March 31, 2005                |  |                |   |  | $            |        |                          |        | 54,240,505 |                    | $ | 542,000 |                             | $ | 33,275,000 |                           |  | $ | (32,504,000 | ) |  | $ | (4,618,000  | ) |  | $ | (3,305,000 | )
|                                          |  |                 |   |  |              |         |                          |        |            |                    |   |         |                             |   |            |                           |  |   |             |   |  |   |             |   |  |   |            |  



The accompanying
footnotes are an integral part of these condensed financial statements.



5



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BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED MARCH 31, 2005 AND 2004

(unaudited)



|                                                                               |  |                                |            |   |                                |   |            |  
|------------------------------------------------------------------------------ |  | ------------------------------ | ---------- | - | ------------------------------ | - | ---------- | -
|                                                                               |  | Six MonthsEnded March 31, 2005 |            |   | Six MonthsEnded March 31, 2004 |  
|Cash flows from operating activities:                                          |  |                                |            |   |                                |   |            |  
|Net loss                                                                       |  | $                              | (5,340,000 | ) |                                | $ | (3,868,000 | )
|Adjustments to reconcile net loss to net cash flows from operating activities: |  |                                |            |   |                                |   |            |  
|Depreciation                                                                   |  |                                | 209,000    |   |                                |   | 135,000    |  
|Amortization                                                                   |  |                                | 61,000     |   |                                |   | 61,000     |  
|Write-down of inventory                                                        |  |                                | 350,000    |   |                                |   |           |  
|Stock-based compensation                                                       |  |                                | 3,000      |   |                                |   | 1,000      |  
|Amortization of discounts related to debt                                      |  |                                | 25,000     |   |                                |   | 28,000     |  
|Changes in cash resulting from changes in:                                     |  |                                |            |   |                                |   |            |  
|Accounts receivable                                                            |  |                                | (867,000   | ) |                                |   | 293,000    |  
|Unbilled receivables                                                           |  |                                | 51,000     |   |                                |   | (77,000    | )
|Inventories                                                                    |  |                                | (82,000    | ) |                                |   | 83,000     |  
|Other assets                                                                   |  |                                | (5,000     | ) |                                |   | 38,000     |  
|Accounts payable and accrued liabilities                                       |  |                                | (670,000   | ) |                                |   | 479,000    |  
|Customer deposits                                                              |  |                                | (8,000     | ) |                                |   | (17,000    | )
|Unearned revenues                                                              |  |                                | (82,000    | ) |                                |   | (83,000    | )
|                                                                               |  |                                |            |   |                                |   |            |  
|Net cash flows from operating activities                                       |  |                                | (6,355,000 | ) |                                |   | (2,927,000 | )
|                                                                               |  |                                |            |   |                                |   |            |  
|Cash flows from investing activities:                                          |  |                                |            |   |                                |   |            |  
|Purchase of property and equipment                                             |  |                                | (53,000    | ) |                                |   | (78,000    | )
|                                                                               |  |                                |            |   |                                |   |            |  
|Net cash flows from investing activities                                       |  |                                | (53,000    | ) |                                |   | (78,000    | )
|                                                                               |  |                                |            |   |                                |   |            |  
|Cash flows from financing activities:                                          |  |                                |            |   |                                |   |            |  
|Repayment of short-term borrowings                                             |  |                                |           |   |                                |   | (103,000   | )
|Repayment of notes payable and long-term debt                                  |  |                                | (125,000   | ) |                                |   | (290,000   | )
|Proceeds from Stockholder note receivable                                      |  |                                | 6,368,000  |   |                                |   | 3,074,000  |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Net cash flows from financing activities                                       |  |                                | 6,243,000  |   |                                |   | 2,681,000  |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Net change in cash                                                             |  |                                | (165,000   | ) |                                |   | (324,000   | )
|Cash at beginning of period                                                    |  |                                | 204,000    |   |                                |   | 538,000    |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Cash at end of period                                                          |  | $                              | 39,000     |   |                                | $ | 214,000    |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Supplemental disclosure of cash flow information:                              |  |                                |            |   |                                |   |            |  
|Cash paid for interest during period                                           |  | $                              | 136,000    |   |                                | $ | 32,000     |  
|                                                                               |  |                                |            |   |                                |   |            |  



The accompanying
footnotes are an integral part of these condensed financial statements.



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##### Table of Contents

BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



|1. | Description of the company:
|-- | ---------------------------



The Companys principal focus is the development of a personalized therapeutic cancer vaccine, which is named Biovaxid ®, for the treatment of non-Hodgkins Lymphoma, a low-grade Follicular
Lymphoma (FL). FL is a deadly cancer of the white blood cells. This therapeutic vaccine is currently in a pivotal Phase III clinical trial. In September 2001, the Company entered into a Cooperative Research and Development Agreement (CRADA) with the
National Cancer Institute (NCI) for the development of this therapeutic vaccine. In April 2004, the Investigational New Drug application (IND) for Biovaxid® was transferred to the Company from the NCI.



The Company also produces mammalian and insect cells, monoclonal antibodies, recombinant and secreted proteins and other
cell culture products using its unique capability, expertise and proprietary advancements in the cell production process known as hollow fiber perfusion. In addition to the commercial contract production business, for more than fourteen years the
Company has been designated by the National Institutes of Health as the National Cell Culture Center (NCCC). The Company also manufactures instruments and disposables used in the hollow fiber production of cell culture products. The
Companys hollow fiber cell culture products and instruments are used by biopharmaceutical and biotech companies, medical schools, universities, research facilities, hospitals and public and private laboratories.



|2. | Significant accounting policies:
|-- | --------------------------------



Basis of presentation:



The accompanying unaudited condensed financial statements have been derived from unaudited interim financial information prepared in accordance with the
rules and regulations of the Securities and Exchange Commission for quarterly financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. The financial
statements of the Company, in the opinion of management, include all normal and recurring adjustments necessary for a fair presentation of results as of the dates and for the periods covered by the financial statements.



Operating results for the six months ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the entire fiscal year. For further information, refer to the financial statements and footnotes thereto included in the Companys Annual Report on Form 10-KSB for the fiscal year
ended September 30, 2004.



In 2003, the Company adopted
Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (SFAS 142), under which amortization of goodwill is no longer permitted. Intangible assets such as goodwill are tested for impairment annually or whenever
there is an impairment indicator. The Company has not recorded any impairment losses as a result of the new standard.



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BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



|2. | Significant accounting policies (continued):
|-- | --------------------------------------------



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



Net income (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.



Stock-based compensation:



The Company follows Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation (SFAS 123) for non-employee stock based compensation, which establishes a fair value based method of accounting for such stock-based compensation. However, the Company has elected to account for its
employee stock compensation plans using the intrinsic value method under Accounting Principles Board Opinion No. 25 whereby compensation expense is only recorded to the extent that the fair value of the underlying stock exceeds the stock option
price at the date of grant.



The following table reflects
supplemental financial information related to stock-based employee compensation, as required by Statement of Financial Accounting Standards No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION  TRANSITION AND DISCLOSURE.



|                                                     |  |                  |            |   |               |   |            |  
|---------------------------------------------------- |  | ---------------- | ---------- | - | ------------- | - | ---------- | -
|                                                     |  | Six months ended |           
|                                                     |  | March 31,2005    |            |   | March 31,2004 |  
|Net loss, as reported                                |  | $                | (5,340,000 | ) |               | $ | (3,868,000 | )
|                                                     |  |                  |            |   |               |   |            |  
|Stock-based compensation, as reported                |  | $                | 3,000      |   |               | $ | 1,000      |  
|                                                     |  |                  |            |   |               |   |            |  
|Stock-based compensation under fair value method     |  | $                | (110,000   | ) |               | $ | (564,000   | )
|                                                     |  |                  |            |   |               |   |            |  
|Pro-forma net loss under fair value method           |  | $                | (5,447,000 | ) |               | $ | (4,431,000 | )
|                                                     |  |                  |            |   |               |   |            |  
|Basic net loss per share, as reported                |  | $                | (.12       | ) |               | $ | (.10       | )
|                                                     |  |                  |            |   |               |   |            |  
|Pro-forma net loss per share under fair value method |  | $                | (.13       | ) |               | $ | (.12       | )
|                                                     |  |                  |            |   |               |   |            |  



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BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



|2. | Significant accounting policies (continued):
|-- | --------------------------------------------



Revenue recognition:



Instruments and disposables sales are recognized in the period in which the applicable products are delivered. 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.



Contract costs related to cell culture production include all direct material, subcontract and labor costs and those indirect costs related to contract
performance, such as indirect labor, insurance, supplies and tools. We believe that actual costs incurred in contract cell production services is the best indicator of the performance of the contractual obligations, because the costs relate
primarily to the amount of labor incurred to perform such services. The deliverables inherent in each of our cell culture production contracts are not output driven, but rather driven by a pre-determined production run. The duration of our cell
culture production contracts range typically from 2 to 14 months.



|3. | Liquidity and management plans:
|-- | -------------------------------



During the six months ended March 31, 2005 the Company incurred a net loss of $5,340,000. At March 31, 2005 the Company had an accumulated deficit of
$32,504,000 and working capital deficit of approximately $1,466,000. The Company has been meeting its cash requirements through the use of cash on hand, short-term borrowings (primarily from affiliates), the collection of and advances on the
Accentia Biopharmaceuticals, Inc. (Accentia) Stockholder note receivable, and by managing its accounts payable. The Companys auditors issued a going concern opinion on the financial statements for the year ending
September 30, 2004 citing significant losses and working capital deficits at that date, which raised substantial doubt about the Companys ability to continue as a going concern. The Company plans to fund its ongoing operational and development
costs through the receipt of Stockholder note receivables ($3,045,000 of which was received in this quarter), including our anticipation of potential advances against the subscription receivable remaining of $4,618,000 and through as yet
unidentified equity and debt financing transactions. We have no commitment for our required funding. There is no assurance that the required funds can be obtained on terms acceptable or favorable to us, if at all.



On August 17, 2004 the Company entered into a Biologic Products
Commercialization Agreement with Accentia, which owns 81% of the Companys outstanding stock, whereby Accentia will be the Companys exclusive commercialization partner for all biologics products, including without limitation Biovaxid, the
Companys therapeutic Cancer Vaccine for non-Hodgkins Lymphoma. For so long as Accentia owns 51% or more of the Companys outstanding capital stock the Company will only be required to reimburse Accentia for direct and indirect expenses.
Should Accentia own less than 51% of the Companys outstanding capital stock, the agreement requires that the Company pay scheduled compensation for these services.



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CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



|4 | Concentrations 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 ongoing credit evaluations of its customers. Two customers accounted for 15% and 11% of revenues for the six months ended March 31, 2005. Two customers accounted for approximately 28% and 16% of the Companys
trade accounts receivable balance at March 31, 2005.



A
significant amount of the Companys revenue has been derived from export sales. The Companys export sales were 41% and 38% for the six months ended March 31, 2005 and 2004, respectively. For the six months ended March 31, 2005, customers
in two foreign countries (United Kingdom and Canada) accounted for 16% and 14% of total revenues, respectively.



|5. | Inventories:
|-- | ------------



Inventories consist of the following at March 31, 2005:



|                |  |   |        
|--------------- |  | - | -------
|Finished goods  |  | $ | 65,000 
|Work-in-process |  |   | 126,000
|Raw materials   |  |   | 103,000
|                |  |   |        
|                |  | $ | 294,000
|                |  |   |        



Upon evaluation of
future needs to satisfy anticipated demand levels, and after evaluating the inability to meet initial budget expectations after Accentias acquisition in June 2003, the Company wrote off $0.4 million in excess unsellable inventory during the
six months ended March 31, 2005, most of which had been previously classified in non-current assets.



|6. | Income taxes:
|-- | -------------



No provision for income taxes has been recorded for the six months ended March 31, 2005 and 2004 due to the losses incurred during the periods. At March
31, 2005, the Company has net operating loss carryforwards of approximately $20.8 million available to offset future taxable income, which will begin to expire in 2020.



SFAS 109 requires that a deferred tax asset be reduced by a valuation allowance if, based on the weight of the available
evidence, it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. The Company has recorded a deferred tax asset evaluation allowance of $8.2 million, which fully offsets
all deferred tax assets.





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CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



|7. | Net loss per common share:
|-- | --------------------------



The Company had net losses for all periods presented. Diluted loss per share assumes conversion of all potentially dilutive outstanding common stock
options and warrants. Potential common shares outstanding are excluded from the calculation of diluted loss per share if their effect is anti-dilutive. As such, dilutive loss per share is the same as basic loss per share for all periods presented as
the effect of all options outstanding is anti-dilutive.



The
following table sets forth the calculations of basic and diluted net loss per share:



|                                                    |  |                           |            |   |      |   |            |  
|--------------------------------------------------- |  | ------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                    |  | Six months ended March 31 |           
|                                                    |  | 2005                      |            |   | 2004 |  
|Numerator:                                          |  |                           |            |   |      |   |            |  
|Net loss                                            |  | $                         | (5,340,000 | ) |      | $ | (3,868,000 | )
|                                                    |  |                           |            |   |      |   |            |  
|Denominator:                                        |  |                           |            |   |      |   |            |  
|For basic loss per share  weighted average shares  |  |                           | 42,780,668 |   |      |   | 38,160,733 |  
|Effect of dilutive securities                       |  |                           |           |   |      |   |           |  
|                                                    |  |                           |            |   |      |   |            |  
|Weighted average shares for dilutive loss per share |  |                           | 42,780,668 |   |      |   | 38,160,733 |  
|                                                    |  |                           |            |   |      |   |            |  
|Net loss per share, basic and dilutive              |  | $                         | (.12       | ) |      | $ | (.10       | )
|                                                    |  |                           |            |   |      |   |            |  



The effect of common
stock equivalents are not considered in the calculation of diluted loss per share because the effect would be anti-dilutive. They are as follows at March 31, 2005 and 2004:



|                                              |  |            |  |           
|--------------------------------------------- |  | ---------- |  | ----------
|                                              |  | 2005       |  | 2004      
|Options and warrants to purchase common stock |  | 17,203,767 |  | 16,387,767
|Preferred stock (convertible to common stock) |  |           |  | 16,043,772
|Shares issuable for convertible debt          |  | 6,382,152  |  | 6,382,152 



|8. | Segment information:
|-- | --------------------



The Company operates in four identifiable industry segments. The Companys Cell Culture products and services and National Cell Culture Center
segments are engaged in the production and contract manufacturing of biologic drugs and cell production for research institutions worldwide. The National Cell Culture Center segment performs the same services, but only in connection with the NIH
grant. The Instruments and Disposables segment is engaged in the development, manufacture and marketing of patented cell culture systems, equipment and consumable parts to pharmaceutical, diagnostic and biotechnology companies, as well as leading
research institutions worldwide. The Therapeutic Vaccine segment, which has generated no revenues to date, is focused on developing Biovaxid, as described earlier.



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CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



|8. | Segment information (continued):
|-- | --------------------------------



The Companys facilities and other assets as well as gross margins and expenses are not distinguished among the identifiable segments. Revenue
information about the Companys segments for the respective six-month periods is as follows:



|                  |  |                                    |           |                              |   |                             |  |       |           |  |   |          
|----------------- |  | ---------------------------------- | --------- | ---------------------------- | - | --------------------------- |  | ----- | --------- |  | - | ---------
|                  |  | Cell Culture Products and Services |           | National Cell Culture Center |   | Instruments and Disposables |  | Total
|Net revenue, 2005 |  | $                                  | 636,000   |                              | $ | 527,000                     |  | $     | 1,447,000 |  | $ | 2,610,000
|                  |  |                                    |           |                              |   |                             |  |       |           |  |   |          
|Net revenue, 2004 |  | $                                  | 1,475,000 |                              | $ | 678,000                     |  | $     | 1,419,000 |  | $ | 3,677,000
|                  |  |                                    |           |                              |   |                             |  |       |           |  |   |          



|9. | Commitments and contingencies:
|-- | ------------------------------



Legal proceedings:



On January 24, 2005, Dr. Robert Pfeffer filed an action against BioVest in United States District Court in New Jersey alleging that Dr. Pfeffer has an
employment agreement with the Company under which the Company owes him approximately $600,000 and options to purchase 120,000 shares of Biovest common stock. The Company disputes the alleged employment agreement and the alleged services and BioVest
intends to defend this litigation. Additionally, Dr. Pfeffer alleges that the Company breached its obligation to purchase 168,836 shares of Biovest common stock owned by him for $2.00 per share pursuant to the investment agreement with Accentia. The
Company intends to defend this claim and has recorded all obligations that it considers to be due at March 31, 2005.



BioVest is a party to litigation captioned EKG Sales Associates, Inc. v. Biovest International, Inc. The litigation commenced on March 8, 2005, in the
Circuit Court of the Twelfth Judicial Circuit, Will County, Illinois. The Plaintiff alleged failure by Biovest International, Inc. to pay approximately $7,500 alleged to be due under a contract. Biovest International, Inc. plans to vigorously defend
this litigation.



The Investment Agreement with Accentia
provides that, within twelve months of the date of Accentias investment in Biovest, BioVest is required to file all necessary documents and take all necessary actions to permit the public trading of all outstanding shares of the Companys
common stock that are not subject to restriction on sale or transfer under the applicable securities laws. The Companys management believes that the Company has filed all required documents and reports to enable such stock to trade publicly
without further action. Furthermore, in May 2005, the Company was notified that a broker-dealer filed a Form 211 with the NASD, which if approved, would permit the broker-dealer to initiate quotations for the purchase and sale of the Companys
common stock on the OTC Bulletin Board. The Company has cooperated with this broker-dealer in connection with this process. Under the Accentia investment agreement, should it be determined that the Company should have filed additional documents or
taken additional action to permit the trading of its shares, the agreement provides that the Company would, upon 90 days



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BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



written notice with a right to cure, be obligated to make an offer to
purchase shares of its outstanding stock (other than stock held by Accentia) as follows: 980,000 shares on the first anniversary of the date of Accentias investment in Biovest (June 2004), 1,960,000 shares at the second anniversary, 2,940,000
shares at the third anniversary of the investment, and 3,920,000 shares at the fourth anniversary, with each such repurchase being at a price of $2.00 per share.



A group of approximately thirteen shareholders of the Company have orally communicated to the Company that
they believe that they have a claim that they may assert against the Company as a result of the fact that its common stock has not yet started trading publicly and the Company has not made any repurchase offer pursuant to the investment agreement.
To date, the Company has not received any written notice of such claims, although the Company believes that any such claim, if formally asserted, may be based on the investment agreement. Currently, the Company cannot predict whether these
shareholders will file any action against it, and if such an action is filed, the Company cannot predict what the timing and nature of their claims will be. The Company has informed these shareholders that it does not believe any such claim, if
asserted, would have merit and that the Company would defend same.



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.



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BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



|9. | Commitments and contingencies (continued):
|-- | ------------------------------------------



As of the date of this report, the Company is cooperating with a NASDAQ member firm with a view toward commencing the listing and trading of its stock.



|10. | Other events:
|--- | -------------



During the quarter ended December 31, 2004, the Company approved the conversion of all preferred stock previously issued to Accentia Biopharmaceuticals,
Inc. in connection with the closing of the Investment Agreement to common stock in the Company, which resulted in the retirement of 8,021,886 shares of Preferred stock and the issuance of 16,043,772 shares of common stock to Accentia, Inc. On
February 7, 2005, the Companys Registrar and Transfer Agent issued the stock certificate for these common stock shares.



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BIOVEST INTERNATIONAL, INC.



ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS



Overview



Our major focus has become the
development of our personalized therapeutic cancer vaccine for the treatment of low-grade Follicular Lymphoma (FL), which we have named Biovaxid®. FL is a deadly cancer of the white blood cells. This therapeutic vaccine is currently in a pivotal
Phase III clinical trial. In September 2001, we entered into a Cooperative Research and Development Agreement (CRADA) with the NCI regarding the development of this therapeutic vaccine. In April 2004, the Investigational New Drug application
(IND) for Biovaxid® was transferred to us from the NCI.



We also produce mammalian and insect cells, monoclonal antibodies, recombinant and secreted proteins and other cell culture products using our unique capability, expertise and proprietary advancements in the cell production process known as
hollow fiber perfusion. In addition to our commercial contract production business, for more than fourteen years we have been designated by the National Institutes of Health as the National Cell Culture Center. We also manufacture instruments and
disposables used in the hollow fiber production of cell culture products. Our hollow fiber cell culture products and instruments are used by biopharmaceutical and biotech companies, medical schools, universities, research facilities, hospitals and
public and private laboratories.



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 financial statements:



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. Because of the inherent uncertainties in
estimating costs, it is at least reasonably possible that the estimates used will change in the near term.



Contract costs related to cell culture production include all direct material, subcontract and labor costs and those indirect costs related to contract
performance, such as indirect labor, insurance, supplies and tools. We believe that actual costs incurred in contract cell production



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BIOVEST INTERNATIONAL, INC.



services is the best indicator of the performance of the contractual obligations, because the costs relate primarily to the amount of labor
incurred to perform such services. The deliverables inherent in each of our cell culture production contracts are not output driven, but rather driven by a pre-determined production run. The duration of our cell culture production contracts range
typically from 2 to 14 months.



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. Upon evaluation of future needs to satisfy anticipated demand levels, and after evaluating the inability to
meet initial budget expectations after Accentias acquisition in June 2003, the Company wrote off $0.4 million as excess unsellable inventory, most of which had previously been classified in non-current assets.



The Company follows Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation (SFAS 123) for non-employee stock based compensation, which establishes a fair value based method of accounting for such stock-based compensation. However, the Company has elected to account for its
employee stock compensation plans using the intrinsic value method under Accounting Principles Board Opinion No. 25 whereby compensation expense is only recorded to the extent that the fair value of the underlying stock exceeds the stock option
price at the date of grant.



In assessing the recoverability of
the Companys amounts recorded as goodwill 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.



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. Stockholders 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.



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BIOVEST INTERNATIONAL, INC.



Results of Operations



Revenues. Revenues for the three and six months ended March 31, 2005 of $1,537,000 and $2,610,000 decreased 17% and 29% from $1,854,000 and
$3,677,000 for the three and six months ended March 31, 2004. The sales decline is attributable to the continuing impact of sales force reduction along with the refocus of the Massachusetts production facility to research and development activities.
Contract cell culture production and services decreased 53% to $323,000 from $693,000 for the three months and 57% to $636,000 from $1,475,000 for the six months ended March 31, 2005 compared to the same periods in 2004. This decrease is directly
attributable to the facility refocus described above. National Cell Culture Center sales for the three and six months ended March 31, 2005 decreased 17% and 22% to $279,000 and $527,000 in 2005 compared to $337,000 and $678,000 in 2004. Sales of
instruments and disposables for the three and six months ended March 31, 2005 increased 30% and 2% to $935,000 and $1,447,000 compared to $719,000 and $1,419,000 for the same periods in 2004. Revenues of $105,000 were recorded in the three and six
months ended March 31, 2004 from R&D services provided to an affiliated company with no corresponding revenue line in 2005. The lack of adequate working capital in Biovest prior to Accentias investment had a negative impact on Biovest
sales and Biovest continues to be significantly impacted by the lack of marketing and customer activities in prior periods, and the Companys focus on the Biovaxid project has continued to require resources that would have been utilized in the
core business had the focus not changed.



Gross
Margin. The overall gross margin increased for the second quarter of fiscal year 2005 from 18% to 34% and for the six months ended March 31, 2005 from 11% to 26% versus the comparable periods in 2004. The increases in margin are primarily
the result of the reallocation of facility costs and personnel resources from cell culture products and services and manufacturing of instruments and disposables to research and development, as well as changes in product mix.



Operating Expenses. Research and development expenses for the
three and six months ended March 31, 2005 principally doubled to $2.3 million and $4.3 million from $1.2 million and $2.1 million in the comparable prior year periods. Research and development costs in the six months ended March 31, 2005 relates to
vaccine production supporting the on-going clinical trial and design engineering expense associated with designing a potentially more efficient and commercially scaleable prototype bioreactor for vaccine production. Marketing, general and
administrative expenses decreased from $1.0 million to $0.7 million, or 33%, and from $1.9 million to $1.2 million, or 37%, in the three and six months ended March 31, 2005 compared to the same periods in fiscal 2004. The decrease is attributed
largely to focused activities in our clinical trial rather than historical marketing efforts, thereby reducing associated administrative and corporate expenses. During the six months ended March 31, 2005, we wrote off as a non-recurring charge $0.4
million in inventory that we determined to be unsellable given our current business plan.



Other Expense.Other expense consists of interest expense on the Companys long-term debt, and short-term loans from affiliates. Interest income is nominal in both periods.



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Liquidity and Capital Resources



At March 31, 2005 the Company had an accumulated deficit of $32.5 million and a working capital deficit of approximately $1.5 million. During the six months ended March
31, 2005 we incurred a loss of $5.3 million, consisting of $6.4 million cash flow used for operations, reduced by a $0.4 million write-down of non-current inventory and $0.3 million of depreciation and amortization. We have incurred significant
losses and cash flow deficits in previous years. During fiscal year 2004 and 2003 we incurred losses of $9.0 million and $6.0 million. During fiscal year 2004 and 2003, we used $5.4 million and $3.2 million of cash flow for operations. The Company
has been meeting its cash requirements through the use of cash on hand, short-term borrowings (primarily from affiliates), the collection of the Accentia Stockholder note receivable, and advances on the Stockholder note receivable. The Company
considers its liquidity and capital resource situation to be critical. The Company expects to fund its cash requirements through a combination of advances against its future Stockholder note receivable (see Note 3 to the Condensed Financial
Statements) which are payable in increments, with the next installment scheduled for June 16, 2005, and through as yet unidentified equity and debt financing transactions. We have no commitment for the required funding and we are subject to the risk
that the required funds will not be obtained on terms acceptable or favorable to us, if at all. Our inability to obtain required funds or any substantial delay in obtaining required funds would have an adverse effect on our ability to continue to
conduct our business.



On March 31, 2005 the Company had a
working capital deficit of approximately $1.5 million compared to a working capital deficit of $3.1 million at September 30, 2004.



During the six months ended March 31, 2005 and 2004, we utilized $0.1 million of cash for capital expenditures, primarily to upgrade equipment in our
Worcester laboratory to comply with our plan to produce vaccines for the clinical trial. During the year ended September 30, 2004 we spent a total of $0.4 million in capital expenditures for this project.



In 2001, we 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, as amended, included, among other things, a requirement to pay amounts quarterly to NCI for expenses incurred in connection with the ongoing Phase III clinical trials. Since the April 2004 transfer to us of the IND for development of this
vaccine, the payments to NCI have been reduced to approximately $0.1 million annually. We have funded the continuing development costs as described above, including the renovation of our Worcester facility to meet FDA requirements. Successful
development of the vaccine, if approved by the FDA, from Phase III clinical trials through commercialization will require us to fund significant and ongoing expenditures, perhaps for several years, before revenues are realized, if ever. The CRADA
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. We do not
expect any negative ramifications on the development of the vaccine, and our budget for the next several years anticipates costs that otherwise would have been funded partially by the CRADA agreement.



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BIOVEST INTERNATIONAL, INC.



Continued development activities related to our vaccine, including the Phase III clinical trials, are expected to result in
substantial, and potentially increasing, expenditures over the next several years before any revenues from this product development materialize. While we pursue FDA approval of the vaccine, we plan to make significant investment in the development
of equipment and potentially space and related capability necessary to support production requirements anticipated upon approval and as part of the commercialization of the vaccine. Accordingly, we anticipate that our expenditures related to vaccine
and equipment development and commercialization will increase significantly over that experienced in the past. Our inability to obtain required funds or any substantial delay in obtaining required funds would have an adverse effect on our ability to
continue to develop our vaccine and prepare for its planned commercialization.



Fluctuations in Operating Results



The
Companys 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 the Companys 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 the Company. 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. Further, because our focus is now highly concentrated on the development of Biovaxid, including the designing of a
commercially scaleable prototype of our Autovax, we expect our revenues in our core business of cell culture manufacturing and services to continue to decline. We are currently evaluating the possibility of divesting our Minneapolis operations
before the end of our current fiscal year.



Potential Dilutive Effect of
Outstanding Stock Rights



We have outstanding options,
warrants and convertible debt (Stock Rights) pursuant to which we may be required to issue additional shares of our Common Stock. These Stock Rights are described in footnote 5 and footnote 7 to our Financial Statements for the fiscal
year ended September 30, 2004, which were filed as part of our 10-KSBA. Additionally, as part of our Investment Agreement with Accentia, we granted Accentia the right to maintain its current 81% ownership of our Common Stock in the event of the
exercise of such Stock Rights (the Accentia First Right of Refusal Agreement). The Accentia First Right of Refusal entitles Accentia to purchase that number of shares of our Common Stock necessary to maintain its 81% ownership after the
exercise of any such Stock Rights at an aggregate purchase price equal to the total amount paid in the exercise of such Stock Rights. The Accentia First Right of Refusal Agreement is attached to our form 8-K filed with the SEC on June 24, 2003 as
Exhibit 10. If all outstanding options, warrants, and convertible debt rights are exercised and if the Accentia First Right of Refusal Agreement is fully exercised, we would be required to issue approximately 105,000,000 additional shares of our
common stock.



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ITEM 3. CONTROLS AND
PROCEDURES



An evaluation was performed under the supervision and with the
participation of our management, including the Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of the design and operation of our disclosure procedures. Based on that evaluation, our management, including
the CEO and CFO, concluded that our disclosure controls and procedures were effective as of March 31, 2005. There have been no significant changes in our internal control over financial reporting in fiscal 2004 or the first six months of fiscal 2005
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II.
OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



On
January 24, 2005, Dr. Robert Pfeffer filed an action against us in United States District Court in New Jersey alleging that Dr. Pfeffer has an employment agreement with us under which the Company owes him approximately $600,000 and options to
purchase 120,000 shares of Biovest common stock. We dispute the alleged employment agreement and the alleged services and we intend to defend this litigation. Additionally, Dr. Pfeffer alleges that the Company breached its obligation to purchase
168,836 shares of Biovest common stock owned by him for $2.00 per share pursuant to the investment agreement with Accentia. We intend to defend this claim



BioVest is a party to litigation captioned EKG Sales Associates, Inc. v. Biovest International, Inc. The litigation commenced on March 8, 2005, in the
Circuit Court of the Twelfth Judicial Circuit, Will County, Illinois. The Plaintiff alleged failure by Biovest International, Inc. to pay approximately $7,500 alleged to be due under a contract. Biovest International, Inc. plans to vigorously defend
this litigation.



The Investment Agreement with Accentia provides that, within
twelve months of the date of Accentias investment in Biovest, we are required to file all necessary documents and take all necessary actions to permit the public trading of all outstanding shares of our common stock that are not subject to
restriction on sale or transfer under the applicable securities laws. We believe that we have filed all required documents and reports to enable such stock to trade publicly without further action by us. Furthermore, in May 2005, we were notified
that a broker-dealer filed a Form 211 with the NASD, which if approved, would permit the broker-dealer to initiate quotations for the purchase and sale of our common stock on the OTC Bulletin Board. The Company has cooperated with this broker-dealer
in connection with this process. Under the Accentia investment agreement, should it be determined that we should have filed additional documents or taken additional action to permit the trading of our shares, the agreement provides that we would,
upon 90 days written notice with a right to cure, be obligated to make an offer to purchase shares of our outstanding stock (other than stock held by Accentia) as follows: 980,000 shares on the first anniversary of the date of Accentias
investment in Biovest, 1,960,000 shares at the second anniversary, 2,940,000 shares at the third anniversary of the investment, and 3,920,000 shares at the fourth anniversary, with each such repurchase being at a price of $2.00 per share.



A group of approximately thirteen shareholders of the Company
have orally communicated to us that they believe that they have a claim that they may assert against us as a result of the fact that our common stock has not yet started trading publicly and we have not made any repurchase offer pursuant to the
investment agreement. To date, we have not received any written notice of such claims, although we believe that any such claim, if formally asserted, may be based on the investment agreement. Currently, we cannot predict whether these shareholders
will file any action against us, and if such an action is filed, we cannot predict what the timing and nature of their claims will be. We have informed these shareholders that we do not believe any such claim, if asserted, would have merit and that
we would defend same.



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.



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ITEM 2. CHANGES IN
SECURITIES



During the quarter ended December 31, 2004,
the Company approved the conversion of all preferred stock previously issued to Accentia Biopharmaceuticals, Inc. in connection with the closing of the Investment Agreement to common stock in the Company, which resulted in the retirement of
8,021,886 shares of Preferred stock and the issuance of 16,043,772 shares of common stock to Accentia, Inc. On February 7, 2005, the Companys Registrar and Transfer Agent issued the stock certificate for these common stock shares.



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ITEM 6. EXHIBITS AND
REPORTS



| | (a) | Exhibits
| | --- | --------



| | 31.1 | Certification by Chief Executive Officer pursuant to 18 U.S. C. Section 1350
| | ---- | ----------------------------------------------------------------------------



| | 31.2 | Certification by Chief Financial Officer pursuant to 18 U.S. C. Section 1350
| | ---- | ----------------------------------------------------------------------------



| | 32.1 | Certification by Chief Executive Officer pursuant to Sarbanes Oxley Section 302.
| | ---- | ---------------------------------------------------------------------------------



| | 32.2 | Certification by Chief Financial Officer pursuant to Sarbanes Oxley Section 302.
| | ---- | ---------------------------------------------------------------------------------



| | (b) | Reports on Form 8-K.
| | --- | --------------------



Current Report on Form 8-K filed March 17, 2005



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SIGNATURES



In accordance with the requirements of the
Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.



|                   |  |                                     
|------------------ |  | ------------------------------------
|                   |  | BIOVEST INTERNATIONAL, INC.         
|                   |  | (Registrant)                        
|                   | 
|Date: May 20, 2005 |  | /s/ Dr. Steven Arikian              
|                   |  | Dr. Steven Arikian                  
|                   |  | Chairman and Chief Executive Officer
|                   | 
|Date: May 20, 2005 |  | /s/ James A. McNulty                
|                   |  | James A. McNulty                    
|                   |  | Chief Financial Officer             





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