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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 June 30, 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 MN 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 June 30, 2005, there were
55,819,452 shares of the registrants Common Stock, $0.01 par value (BVTI:OB), issued and outstanding.



Transitional Small Business Disclosure Format

(Check
one)    Yes ̈No  x



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INDEX

BIOVEST
INTERNATIONAL, INC.



|                                                                                                          |  |     
|--------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                          |  | Page
|PART I. FINANCIAL INFORMATION                                                                             |  |     
|                                                                                                          | 
|ITEM 1. Financial Statements                                                                              |  |     
|                                                                                                          | 
|Condensed Balance Sheets as of June 30, 2005 (unaudited) and September 30, 2004 (audited)                 |  | 3   
|                                                                                                          | 
|Condensed Statements of Operations for the Three and Nine Months Ended June 30, 2005 and 2004 (unaudited) |  | 5   
|                                                                                                          | 
|Condensed Statement of Stockholders Deficit for the Nine Months Ended June 30, 2005 (unaudited)          |  | 6   
|                                                                                                          | 
|Condensed Statements of Cash Flows for the Nine Months Ended June 30, 2005 and 2004 (unaudited)           |  | 7   
|                                                                                                          | 
|Notes to Condensed Financial Statements                                                                   |  | 8   
|                                                                                                          | 
|ITEM 2. Managements Discussion and Analysis or Plan of Operations                                        |  | 17  
|                                                                                                          | 
|ITEM 3. Controls and Procedures                                                                           |  | 22  
|                                                                                                          | 
|PART II. OTHER INFORMATION                                                                                |  |     
|                                                                                                          | 
|ITEM 1. Legal Proceedings                                                                                 |  | 23  
|                                                                                                          | 
|ITEM 2. Unregistered Sales of Equity Securities                                                           |  | 24  
|                                                                                                          | 
|ITEM 6. Exhibits and Reports on Form 8-K                                                                  |  | 25  
|                                                                                                          | 
|Signatures                                                                                                |  | 26  





2



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BIOVEST INTERNATIONAL, INC.

CONDENSED BALANCE SHEETS



|                                                                                                                                   |  |                          |           |                             |   |          
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------- | --------------------------- | - | ---------
|                                                                                                                                   |  | June 30, 2005(Unaudited) |           | September 30,2004 (Audited)
|ASSETS                                                                                                                             |  |                          |           |                             |   |          
|Current Assets:                                                                                                                    |  |                          |           |                             |   |          
|Cash                                                                                                                               |  | $                        | 112,000   |                             | $ | 204,000  
|Accounts receivable, net of $30,000 and $19,000 allowance for doubtful accounts June 30, 2005 and September 30, 2004,
respectively |  |                          | 711,000   |                             |   | 102,000  
|Unbilled receivables                                                                                                               |  |                          | 3,000     |                             |   | 75,000   
|Inventories                                                                                                                        |  |                          | 270,000   |                             |   | 274,000  
|Prepaid expenses and other current assets                                                                                          |  |                          | 67,000    |                             |   | 141,000  
|                                                                                                                                   |  |                          |           |                             |   |          
|Total current assets                                                                                                               |  |                          | 1,163,000 |                             |   | 796,000  
|                                                                                                                                   |  |                         
|Property, plant and equipment, net                                                                                                 |  |                          | 961,000   |                             |   | 1,100,000
|Other assets:                                                                                                                      |  |                          |           |                             |   |          
|Inventories                                                                                                                        |  |                          |          |                             |   | 289,000  
|Patents and trademarks, net                                                                                                        |  |                          | 423,000   |                             |   | 514,000  
|Goodwill                                                                                                                           |  |                          | 2,131,000 |                             |   | 2,131,000
|                                                                                                                                   |  |                          |           |                             |   |          
|                                                                                                                                   |  | $                        | 4,678,000 |                             | $ | 4,830,000
|                                                                                                                                   |  |                          |           |                             |   |          



3



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BIOVEST INTERNATIONAL, INC.

CONDENSED BALANCE SHEETS CONTINUED



|                                                                                                                                                                                      |  |                          |             |   |                             |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----------- | - | --------------------------- | - | ----------- | -
|                                                                                                                                                                                      |  | June 30, 2005(Unaudited) |             |   | September 30,2004 (Audited) |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                                 |  |                          |             |   |                             |   |             |  
|Current liabilities:                                                                                                                                                                  |  |                          |             |   |                             |   |             |  
|Current maturities of long-term debt                                                                                                                                                  |  | $                        | 4,116,000   |   |                             | $ | 401,000     |  
|Accounts payable (including $424,000 due to affiliate at June 30, 2005)                                                                                                               |  |                          | 1,755,000   |   |                             |   | 1,725,000   |  
|Customer deposits                                                                                                                                                                     |  |                          | 69,000      |   |                             |   | 102,000     |  
|Accrued liabilities:                                                                                                                                                                  |  |                          |             |   |                             |   |             |  
|Compensation and related taxes                                                                                                                                                        |  |                          | 605,000     |   |                             |   | 595,000     |  
|Other                                                                                                                                                                                 |  |                          | 617,000     |   |                             |   | 988,000     |  
|Unearned revenues                                                                                                                                                                     |  |                          | 2,000       |   |                             |   | 106,000     |  
|                                                                                                                                                                                      |  |                          |             |   |                             |   |             |  
|Total current liabilities                                                                                                                                                             |  |                          | 7,164,000   |   |                             |   | 3,917,000   |  
|                                                                                                                                                                                      |  |                         
|Long term debt, less current maturities:                                                                                                                                              |  |                          |             |   |                             |   |             |  
|Related party                                                                                                                                                                         |  |                          | 1,497,000   |   |                             |   | 1,310,000   |  
|Non-related party                                                                                                                                                                     |  |                          | 88,000      |   |                             |   | 3,940,000   |  
|                                                                                                                                                                                      |  |                          |             |   |                             |   |             |  
|                                                                                                                                                                                      |  |                          | 8,749,000   |   |                             |   | 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 June 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 June and September, respectively; 55,819,452 and 38,196,733
shares issued and outstanding, respectively |  |                          | 558,000     |   |                             |   | 382,000     |  
|Additional paid-in capital                                                                                                                                                            |  |                          | 33,561,000  |   |                             |   | 33,352,000  |  
|Accumulated deficit                                                                                                                                                                   |  |                          | (35,085,000 | ) |                             |   | (27,164,000 | )
|Stockholder note receivable                                                                                                                                                           |  |                          | (3,105,000  | ) |                             |   | (10,987,000 | )
|                                                                                                                                                                                      |  |                          |             |   |                             |   |             |  
|Total stockholders deficit                                                                                                                                                           |  |                          | (4,071,000  | ) |                             |   | (4,337,000  | )
|                                                                                                                                                                                      |  |                          |             |   |                             |   |             |  
|                                                                                                                                                                                      |  | $                        | 4,678,000   |   |                             | $ | 4,830,000   |  
|                                                                                                                                                                                      |  |                          |             |   |                             |   |             |  



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



4



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BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2005 AND 2004

(unaudited)



|                                      |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------- |  | ---------------------------------- | ---------- | - | ---------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                      |  | For the three months endedJune 30, |            |   | For the nine months ended June 30, |  
|                                      |  | 2005                               |            |   | 2004                               |   |            | 2005 |  |   | 2004       |  
|Revenues:                             |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|Cell culture products and services    |  | $                                  | 318,000    |   |                                    | $ | 372,000    |      |  | $ | 954,000    |   |  | $ | 1,847,000  |  
|National cell culture center          |  |                                    | 239,000    |   |                                    |   | 261,000    |      |  |   | 766,000    |   |  |   | 939,000    |  
|Instrument and disposables            |  |                                    | 920,000    |   |                                    |   | 717,000    |      |  |   | 2,367,000  |   |  |   | 2,136,000  |  
|R & D services, related party         |  |                                    |           |   |                                    |   | 15,000     |      |  |   |           |   |  |   | 120,000    |  
|                                      |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|Total revenues                        |  |                                    | 1,477,000  |   |                                    |   | 1,365,000  |      |  |   | 4,087,000  |   |  |   | 5,042,000  |  
|                                      |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|Operating costs and expenses:         |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|Cost of sales                         |  |                                    | 791,000    |   |                                    |   | 1,283,000  |      |  |   | 2,725,000  |   |  |   | 4,569,000  |  
|Inventory write-down                  |  |                                    |           |   |                                    |   |           |      |  |   | 350,000    |   |  |   |           |  
|Research and development              |  |                                    | 2,603,000  |   |                                    |   | 1,395,000  |      |  |   | 6,853,000  |   |  |   | 3,489,000  |  
|Marketing, general and administrative |  |                                    | 571,000    |   |                                    |   | 722,000    |      |  |   | 1,783,000  |   |  |   | 2,659,000  |  
|                                      |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|Total operating costs and expenses    |  |                                    | 3,965,000  |   |                                    |   | 3,400,000  |      |  |   | 11,711,000 |   |  |   | 10,717,000 |  
|                                      |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|Loss from operations                  |  |                                    | (2,488,000 | ) |                                    |   | (2,035,000 | )    |  |   | (7,624,000 | ) |  |   | (5,675,000 | )
|                                      |  |                                    |            |  
|Other income (expense):               |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|Interest expense, net                 |  |                                    | (93,000    | ) |                                    |   | (107,000   | )    |  |   | (297,000   | ) |  |   | (320,000   | )
|Other expense                         |  |                                    |           |   |                                    |   |           |      |  |   |           |   |  |   | (15,000    | )
|                                      |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|                                      |  |                                    | (93,000    | ) |                                    |   | (107,000   | )    |  |   | (297,000   | ) |  |   | (335,000   | )
|                                      |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|Net loss                              |  | $                                  | (2,581,000 | ) |                                    | $ | (2,142,000 | )    |  | $ | (7,921,000 | ) |  | $ | (6,010,000 | )
|                                      |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|Net loss per common share:            |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted                     |  | $                                  | (.05       | ) |                                    | $ | (.06       | )    |  | $ | (.17       | ) |  | $ | (.16       | )
|                                      |  |                                    |            |  
|Weighted average shares outstanding:  |  |                                    |            |   |                                    |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted                     |  |                                    | 54,304,877 |   |                                    |   | 38,160,733 |      |  |   | 46,680,839 |   |  |   | 38,160,733 |  



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





5



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BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENT OF STOCKHOLDERS DEFICIT

FOR THE NINE MONTHS ENDED JUNE 30, 2005

(unaudited)



|                                          |  |                 |   |  |              |         |                          |  |            |                    |   |         |                             |   |            |       |  |   |             |   |  |   |             |   |  |   |            |  
|----------------------------------------- |  | --------------- | - |  | ------------ | ------- | ------------------------ |  | ---------- | ------------------ | - | ------- | --------------------------- | - | ---------- | ----- |  | - | ----------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                          |  | Preferred Stock |   |  | Common Stock |         | AdditionalPaid-inCapital |  |            | AccumulatedDeficit |   |         | StockSubscriptionReceivable |   |            | Total | 
|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 |  |                |   |  |              |        |                          |  |           |                    |   |        |                             |   |           |       |  |   |            |   |  |   | 8,032,000   |   |  |   | 8,032,000  |  
|Stock-based compensation                  |  |                |   |  |              |        |                          |  |           |                    |   |        |                             |   | 5,000      |       |  |   |            |   |  |   |            |   |  |   | 5,000      |  
|Exercise of 1stright of refusal           |  |                |   |  |              |        |                          |  | 1,278,947  |                    |   | 13,000  |                             |   | 137,000    |       |  |   |            |   |  |   | (150,000    | ) |  |   |           |  
|Exercise of options                       |  |                |   |  |              |        |                          |  | 300,000    |                    |   | 3,000   |                             |   | 147,000    |       |  |   |            |   |  |   |            |   |  |   | 150,000    |  
|Conversion of shares                      |  | (8,021,886      | ) |  |              | (80,000 | )                        |  | 16,043,772 |                    |   | 160,000 |                             |   | (80,000    | )     |  |   |            |   |  |   |            |   |  |   |           |  
|Net loss                                  |  |                |   |  |              |        |                          |  |           |                    |   |        |                             |   |           |       |  |   | (7,921,000  | ) |  |   |            |   |  |   | (7,921,000 | )
|                                          |  |                 |   |  |              |         |                          |  |            |                    |   |         |                             |   |            |       |  |   |             |   |  |   |             |   |  |   |            |  
|Balances at June 30, 2005                 |  |                |   |  | $            |        |                          |  | 55,819,452 |                    | $ | 558,000 |                             | $ | 33,561,000 |       |  | $ | (35,085,000 | ) |  | $ | (3,105,000  | ) |  | $ | (4,071,000 | )
|                                          |  |                 |   |  |              |         |                          |  |            |                    |   |         |                             |   |            |       |  |   |             |   |  |   |             |   |  |   |            |  



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





6



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BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JUNE 30, 2005 AND 2004

(unaudited)



|                                                                               |  |                                |            |   |                                |   |            |  
|------------------------------------------------------------------------------ |  | ------------------------------ | ---------- | - | ------------------------------ | - | ---------- | -
|                                                                               |  | Nine MonthsEnded June 30, 2005 |            |   | Nine MonthsEnded June 30, 2004 |  
|Cash flows from operating activities:                                          |  |                                |            |   |                                |   |            |  
|Net loss                                                                       |  | $                              | (7,921,000 | ) |                                | $ | (6,010,000 | )
|Adjustments to reconcile net loss to net cash flows from operating activities: |  |                                |            |   |                                |   |            |  
|Depreciation                                                                   |  |                                | 317,000    |   |                                |   | 203,000    |  
|Amortization                                                                   |  |                                | 91,000     |   |                                |   | 91,000     |  
|Write-down of inventory                                                        |  |                                | 350,000    |   |                                |   |           |  
|Stock-based compensation                                                       |  |                                | 5,000      |   |                                |   | 4,000      |  
|Amortization of discounts related to debt                                      |  |                                | 37,000     |   |                                |   | 40,000     |  
|Changes in cash resulting from changes in:                                     |  |                                |            |   |                                |   |            |  
|Accounts receivable                                                            |  |                                | (608,000   | ) |                                |   | 406,000    |  
|Unbilled receivables                                                           |  |                                | 73,000     |   |                                |   | (68,000    | )
|Inventories                                                                    |  |                                | (58,000    | ) |                                |   | 107,000    |  
|Other assets                                                                   |  |                                | 73,000     |   |                                |   | 105,000    |  
|Accounts payable and accrued liabilities                                       |  |                                | (86,000    | ) |                                |   | 1,182,000  |  
|Customer deposits                                                              |  |                                | (33,000    | ) |                                |   | (76,000    | )
|Unearned revenues                                                              |  |                                | (104,000   | ) |                                |   | (94,000    | )
|                                                                               |  |                                |            |   |                                |   |            |  
|Net cash flows from operating activities                                       |  |                                | (7,864,000 | ) |                                |   | (4,110,000 | )
|                                                                               |  |                                |            |   |                                |   |            |  
|Cash flows from investing activities:                                          |  |                                |            |   |                                |   |            |  
|Purchase of property and equipment                                             |  |                                | (179,000   | ) |                                |   | (395,000   | )
|                                                                               |  |                                |            |   |                                |   |            |  
|Net cash flows from investing activities                                       |  |                                | (179,000   | ) |                                |   | (395,000   | )
|                                                                               |  |                                |            |   |                                |   |            |  
|Cash flows from financing activities:                                          |  |                                |            |   |                                |   |            |  
|Repayment of short-term borrowings                                             |  |                                |           |   |                                |   | (103,000   | )
|Repayment of notes payable and long-term debt                                  |  |                                | (230,000   | ) |                                |   | (285,000   | )
|Proceeds from exercise of stock option                                         |  |                                | 150,000    |   |                                |   |           |  
|Proceeds from Stockholder note receivable                                      |  |                                | 8,031,000  |   |                                |   | 4,496,000  |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Net cash flows from financing activities                                       |  |                                | 7,951,000  |   |                                |   | 4,108,000  |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Net change in cash                                                             |  |                                | (92,000    | ) |                                |   | (397,000   | )
|Cash at beginning of period                                                    |  |                                | 204,000    |   |                                |   | 538,000    |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Cash at end of period                                                          |  | $                              | 112,000    |   |                                | $ | 141,000    |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Supplemental disclosure of cash flow information:                              |  |                                |            |   |                                |   |            |  
|Cash paid for interest during period                                           |  | $                              | 189,000    |   |                                | $ | 33,000     |  
|                                                                               |  |                                |            |   |                                |   |            |  



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





7



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BIOVEST INTERNATIONAL, INC.

NOTES TO CONDENSED 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 three and nine months ended June 30, 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.





8



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BIOVEST INTERNATIONAL, INC.

NOTES TO CONDENSED 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. (See Note 7 for
additional information.)



New accounting pronouncements:



In March 2005, the FASB issued Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143 (FIN 47), which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation
when incurred if the liabilitys fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company is currently evaluating the effect that the adoption of FIN 47 will have on its
consolidated results of operations and financial condition but does not expect it to have a material impact.



In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (SFAS 154), which replaces Accounting Principles
Board Opinions No. 20 Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements  An Amendment of APB Opinion No. 28. SFAS 154 provides guidance on accounting for and reporting of
accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is
effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal 2006. The Company is currently evaluating the effect that
the adoption of SFAS 154 will have on its consolidated results of operations and financial condition, but does not expect it to have a material impact.





9



---

BIOVEST INTERNATIONAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)



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



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.



|                                                     |  |                    |            |   |                   |   |            |               |  |   |               |   |  |   |            |  
|---------------------------------------------------- |  | ------------------ | ---------- | - | ----------------- | - | ---------- | ------------- |  | - | ------------- | - |  | - | ---------- | -
|                                                     |  | Three months ended |            |   | Nine months ended |  
|                                                     |  | June 30, 2005      |            |   | June 30, 2004     |   |            | June 30, 2005 |  |   | June 30, 2004 |  
|Net loss, as reported                                |  | $                  | (2,581,000 | ) |                   | $ | (2,142,000 | )             |  | $ | (7,921,000    | ) |  | $ | (6,010,000 | )
|                                                     |  |                    |            |   |                   |   |            |               |  |   |               |   |  |   |            |  
|Stock-based compensation, as reported                |  | $                  | 2,000      |   |                   | $ | 4,000      |               |  | $ | 5,000         |   |  | $ | 4,000      |  
|                                                     |  |                    |            |   |                   |   |            |               |  |   |               |   |  |   |            |  
|Stock-based compensation under fair value method     |  | $                  | 55,000     |   |                   | $ | 140,000    |               |  | $ | 165,000       |   |  | $ | 211,000    |  
|                                                     |  |                    |            |   |                   |   |            |               |  |   |               |   |  |   |            |  
|Pro-forma net loss under fair value method           |  | $                  | (2,634,000 | ) |                   | $ | (2,278,000 | )             |  | $ | (8,081,000    | ) |  | $ | (6,217,000 | )
|                                                     |  |                    |            |   |                   |   |            |               |  |   |               |   |  |   |            |  
|Basic net loss per share, as reported                |  | $                  | (.05       | ) |                   | $ | (.06       | )             |  | $ | (.17          | ) |  | $ | (.16       | )
|                                                     |  |                    |            |   |                   |   |            |               |  |   |               |   |  |   |            |  
|Pro-forma net loss per share under fair value method |  | $                  | (.05       | ) |                   | $ | (.06       | )             |  | $ | (.17          | ) |  | $ | (.16       | )
|                                                     |  |                    |            |   |                   |   |            |               |  |   |               |   |  |   |            |  



10



---

BIOVEST INTERNATIONAL, INC.

NOTES TO CONDENSED 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 nine months ended June 30, 2005 the Company incurred a net loss of approximately $7.9 million. At June 30, 2005 the Company had an accumulated
deficit of approximately $35.0 million and working capital deficit of approximately $6.0 million. 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 (approximately $1.7 million of which was received in this quarter), including our anticipation of potential advances against the subscription receivable remaining of
approximately $3.0 million 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.



11



---

BIOVEST INTERNATIONAL, INC.

NOTES TO CONDENSED 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. One customer accounted for 16% of revenues for the three months and for the nine months ended June 30, 2005. This same customer accounted for approximately 19% of the
Companys trade accounts receivable balance at June 30, 2005. Two additional customers accounted for approximately 13% and 12% of the Companys trade accounts receivable balance at June 30, 2005, respectively.



A significant amount of the Companys revenue has been derived from
export sales. The Companys export sales were 38% and 40% for the three and nine months ended June 30, 2005, respectively, compared to 31% and 40% for the same periods in 2004. For the nine months ended June 30, 2005, customers in two foreign
countries, United Kingdom and Canada, accounted for 13% and 12% of total revenues, respectively. Canada also accounted for 11% of total revenues for the three months ended June 30, 2004.



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



Inventories consist of the following at June 30, 2005 and September 30, 2004:



|                                                       |  |              |         |                   |   |        
|------------------------------------------------------ |  | ------------ | ------- | ----------------- | - | -------
|                                                       |  | June 30,2005 |         | September 30,2004
|Finished goods                                         |  | $            | 26,000  |                   | $ | 52,000 
|Work-in-process                                        |  |              | 143,000 |                   |   | 61,000 
|Raw materials                                          |  |              | 101,000 |                   |   | 450,000
|                                                       |  |              |         |                   |   |        
|                                                       |  |              | 270,000 |                   |   | 563,000
|Less inventory not expected to be sold within one year |  |              |        |                   |   | 289,000
|                                                       |  |              |         |                   |   |        
|                                                       |  | $            | 270,000 |                   | $ | 274,000



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
nine months ended June 30, 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 nine months ended June 30, 2005 and 2004 due to the losses incurred during the periods. At June
30, 2005, the Company has net operating loss carryforwards of approximately $22.7 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 $9.0 million, which fully offsets
all deferred tax assets.



12



---

BIOVEST INTERNATIONAL, INC.

NOTES TO CONDENSED 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:



|                                                    |  |                            |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|--------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                    |  | Three months ended June 30 |            |   | Nine months ended June 30 |  
|                                                    |  | 2005                       |            |   | 2004                      |   |            | 2005 |  |   | 2004       |  
|Numerator:                                          |  |                            |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Net loss                                            |  | $                          | (2,581,000 | ) |                           | $ | (2,142,000 | )    |  | $ | (7,921,000 | ) |  | $ | (6,010,000 | )
|                                                    |  |                            |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Denominator:                                        |  |                            |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|For basic loss per share  weighted average shares  |  |                            | 54,304,877 |   |                           |   | 38,160,733 |      |  |   | 46,680,839 |   |  |   | 38,160,733 |  
|Effect of dilutive securities                       |  |                            |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|                                                    |  |                            |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Weighted average shares for dilutive loss per share |  |                            | 54,304,877 |   |                           |   | 38,160,733 |      |  |   | 46,680,839 |   |  |   | 38,160,733 |  
|                                                    |  |                            |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Net loss per share, basic and dilutive              |  | $                          | (.05       | ) |                           | $ | (.06       | )    |  | $ | (.17       | ) |  | $ | (.16       | )
|                                                    |  |                            |            |   |                           |   |            |      |  |   |            |   |  |   |            |  



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 June 30, 2005 and 2004 assuming Accentia exercises their First Right of Refusal:



|                                              |  |            |  |           
|--------------------------------------------- |  | ---------- |  | ----------
|                                              |  | 2005       |  | 2004      
|Options and warrants to purchase common stock |  | 88,967,195 |  | 89,301,405
|Preferred stock (convertible to common stock) |  |           |  | 16,043,772
|Shares issuable for convertible debt          |  | 65,479,847 |  | 63,711,342



13



---

BIOVEST INTERNATIONAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)



|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.



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 three and nine month periods is as follows:



|                                   |  |                            |           |                           |   |           |  |      |           |  |   |          
|---------------------------------- |  | -------------------------- | --------- | ------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                   |  | Three months ended June 30 |           | Nine months ended June 30
|                                   |  | 2005                       |           | 2004                      |   | 2005      |  | 2004
|Cell Culture Products and Services |  | $                          | 318,000   |                           | $ | 387,000   |  | $    | 954,000   |  | $ | 1,967,000
|                                   |  |                            |           |                          
|National Cell Culture Center       |  |                            | 239,000   |                           |   | 261,000   |  |      | 766,000   |  |   | 939,000  
|                                   |  |                            |           |                          
|Instruments and Disposables        |  |                            | 920,000   |                           |   | 717,000   |  |      | 2,367,000 |  |   | 2,136,000
|                                   |  |                            |           |                           |   |           |  |      |           |  |   |          
|Total revenues                     |  | $                          | 1,477,000 |                           | $ | 1,365,000 |  | $    | 4,087,000 |  | $ | 5,042,000
|                                   |  |                            |           |                           |   |           |  |      |           |  |   |          



|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 has filed an Answer & Counterclaim in this matter, which has now been transferred to the Southern District of New York, and the discovery process has begun. The Company has recorded all obligations that it considers to be potentially due
at June 30, 2005.



14



---

BIOVEST INTERNATIONAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)



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



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. The parties have reached a settlement in this matter.



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; in July 2005 this broker-dealer informed the Company that the NASD had approved the Form 211 filing, which will permit the broker-dealer to
initiate quotations for the purchase and sale of the Companys common stock on the OTC Bulletin Board upon final approval by NASD required for trading. The Company continues to cooperate 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 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 (with said anniversary date being 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.



15



---

BIOVEST INTERNATIONAL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)



|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.



During the quarter ended June 30, 2005, a former employee, exercised a common stock option to purchase 300,000 shares of the Companys common stock
at a price of $0.50 per share. Pursuant to the First Right of Refusal Agreement dated June 16, 2003, our parent corporation, Accentia Biopharmaceuticals, Inc., then exercised its right to maintain its 81% ownership of our common stock by purchasing
1,278,947 shares of common stock for the purchase price of $150,000, the same purchase price as the triggering exercise, paid in the form of an interest-bearing Promissory Note payable in a single payment with a five-year term in accordance with the
terms of the First Right of Refusal Agreement.



|11. | Subsequent events:
|--- | ------------------



The Company was notified in August 2005 that the National Institutes of Health (NIH) grant in the approximate amount of $1.0 million, which
has funded a substantial part of the budget for the Companys National Cell Culture Center (NCCC) located in its Minneapolis location, will not be renewed after September 1, 2005. The Company can resubmit an application to the NIH
by October 1, 2005, which if then approved by NIH (a several months process), funding could commence by July 2006. In the interim, the company expects reduced grant-related revenues from NIH, and depending on those revenues, the Company may
reduce its staffing level and other costs associated with the NCCC.



In July and August 2005 the Company negotiated with approximately 20 shareholders, convertible note-holders, option-holders and/or warrants-holders, to reduce the warrants, convertible note rights and options outstanding, which was
accomplished through adjustments to the pricing of those warrants, notes and options. In furtherance of this plan, the Companys Board of Directors has requested that the Companys parent corporation, Accentia Biopharmaceuticals, Inc.
waive its First Right of Refusal pursuant to a First Right of Refusal Agreement dated June 16, 2003 (attached as Exhibit 10 to the Companys current report on Form 8-K dated June 24, 2003) with respect to any shares of the Companys common
stock issued in connection with the exercise of any currently-outstanding Qualified Option agreements. The Company anticipates that Accentias Board will approve this requested action. After completion of these changes, the capital structure of
the Company will have been revised as follows:



Current Capital Structure:



Total, fully diluted shares assuming all
options/warrants and First Rights of Refusal are exercised:



|                 |  |             |  |                              |  
|---------------- |  | ----------- |  | ---------------------------- | -
|                 |  | Shares      |  | Percentage ofTotal Ownership |  
|Held by Accentia |  | 170,315,860 |  | 81.0                         | %
|Held by Others   |  | 39,950,634  |  | 19.0                         | %
|                 |  |             |  |                              |  
|                 |  | 210,266,494 |  | 100.0                        | %
|                 |  |             |  |                              |  



Capital Structure Resulting from
Proposed Compromise:



Total, fully diluted shares
assuming all options/warrants and First Rights of Refusal are exercised:



|                 |  |             |  |                              |  
|---------------- |  | ----------- |  | ---------------------------- | -
|                 |  | Shares      |  | Percentage ofTotal Ownership |  
|Held by Accentia |  | 99,083,271  |  | 77.6                         | %
|Held by Others   |  | 28,673,855  |  | 22.4                         | %
|                 |  |             |  |                              |  
|                 |  | 127,757,126 |  | 100.0                        | %
|                 |  |             |  |                              |  



16



---

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



17



---

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.



18



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BIOVEST INTERNATIONAL, INC.



Results of Operations



Revenues. Revenues of $1,477,000 for the three months ended June 30, 2005 increased 8% compared to $1,365,000 in the same period in 2004.
Revenues of $4,087,000 for the nine months ended June 30, 2005 decreased 19% compared to $5,042,000 for the same period in 2004. The sales decline in the nine month period is attributable to the 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 15% to $318,000 from $372,000 for the three months and 48% to $954,000 from $1,847,000 for the nine months ended
June 30, 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 nine months ended June 30, 2005 decreased 8% and 18% to $239,000
and $766,000 in 2005 compared to $261,000 and $939,000 in 2004. Sales of instruments and disposables for the three and nine months ended June 30, 2005 increased 28% and 11% to $920,000 and $2,367,000 compared to $717,000 and $2,136,000 for the same
periods in 2004. Revenues of $15,000 and $120,000, respectively, were recorded in the three and nine months ended June 30, 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 third quarter of fiscal year 2005 from 6% to 46% and for the nine months ended June
30, 2005 from 9% to 33% 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 nine months ended June 30, 2005 increased 87% and 96% to $2.6 million and $6.9 million from $1.4 million and $3.5 million in the
comparable prior year periods. Research and development costs in the nine months ended June 30, 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 $0.7 million to $0.6 million, or 21%, and from $2.7 million to $1.8 million, or 33%, in the three and
nine months ended June 30, 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 nine months ended June 30, 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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BIOVEST INTERNATIONAL, INC.



Liquidity and Capital Resources



At June 30, 2005 the Company had an accumulated deficit of $35.1 million and a working capital deficit of approximately $6.0 million. During the nine months ended June
30, 2005 we incurred a loss of $7.9 million, consisting of $7.9 million cash flow used for operations, reduced by a $0.4 million write-down of non-current inventory and $0.4 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, 2006, 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 June 30, 2005 the Company had a
working capital deficit of approximately $6.0 million compared to a working capital deficit of $3.1 million at September 30, 2004.



During the nine months ended June 30, 2005 and 2004, we utilized $0.2 and $0.4 million of cash, respectively, 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 $0.2 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.



As a result of the activities discussed in Part
II, Item 5 herein, the potential dilutive effect of these outstanding rights has been significantly reduced.



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BIOVEST INTERNATIONAL, INC.



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 June 30, 2005. There have been no significant changes in our internal control over financial reporting in fiscal 2004 or the first nine 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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BIOVEST INTERNATIONAL, INC.



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 have filed an Answer & Counterclaim in this matter, which has now been transferred to the Southern District of New York.
The discovery process has just begun. 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.
Our Answer & Counterclaim denies this obligation, and the Company intends to vigorously 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. The parties have reached a settlement in this matter.



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; in July 2005 this broker-dealer informed the Company that the NASD had approved the Form 211 filing, which will permit the broker-dealer to initiate quotations for the purchase and sale of the Companys common
stock on the OTC Bulletin Board upon final approval by NASD required for trading. The Company continues to cooperate 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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BIOVEST INTERNATIONAL, INC.



ITEM 2. UNREGISTERED
SALES OF EQUITY 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.



During the quarter ended June 30, 2005, a former
employee exercised a common stock option to purchase 300,000 shares of the Companys common stock at a price of $0.50 per share, resulting in the issuance of 300,000 shares of our common stock to him. Pursuant to the First Right of Refusal
Agreement dated June 16, 2003, our parent corporation, Accentia Biopharmaceuticals, Inc., then exercised its right to maintain its 81% ownership of our common stock by purchasing 1,278,947 shares of common stock for the purchase price of $150,000,
the same purchase price as the triggering exercise, paid in the form of an interest-bearing Promissory Note payable in a single payment with a five-year term in accordance with the terms of the First Right of Refusal Agreement.



ITEM 5. OTHER EVENTS



We were notified in August 2005 that the National Institutes of Health (NIH) grant in the approximate amount of
$1.0 million, which has funded a substantial part of the budget for our National Cell Culture Center (NCCC) located in our Minneapolis location, will not be renewed after September 1, 2005. We can resubmit an application to the NIH by
October 1, 2005, which if then approved by NIH (a several months process), funding could commence by July 2006. In the interim, we expect reduced grant-related revenues from NIH, and depending on those revenues, we may reduce our staffing level and
other costs associated with the NCCC.



In July and August 2005
we negotiated with approximately 20 shareholders, convertible note-holders, option-holders and/or warrants-holders, including some of the thirteen mentioned above, to reduce the warrants, convertible note rights and options outstanding, which was
accomplished through adjustments to the pricing of those warrants, notes and options. In furtherance of this plan, the Companys Board of Directors has requested that the Companys parent corporation, Accentia Biopharmaceuticals, Inc.
waive its First Right of Refusal pursuant to a First Right of Refusal Agreement dated June 16, 2003 (attached as Exhibit 10 to the Companys current report on Form 8-K dated June 24, 2003) with respect to any shares of the Companys common
stock issued in connection with the exercise of any currently-outstanding Qualified Option agreements. We anticipate that Accentias Board will approve this requested action. After completion of these changes, the capital structure of the
Company will have been revised as follows:



Current Capital Structure:



Total, fully diluted shares assuming all
options/warrants and First Rights of Refusal are exercised:



|                 |  |             |  |                              |  
|---------------- |  | ----------- |  | ---------------------------- | -
|                 |  | Shares      |  | Percentage ofTotal Ownership |  
|Held by Accentia |  | 170,315,860 |  | 81.0                         | %
|Held by Others   |  | 39,950,634  |  | 19.0                         | %
|                 |  |             |  |                              |  
|                 |  | 210,266,494 |  | 100.0                        | %
|                 |  |             |  |                              |  



Capital Structure Resulting from
Proposed Compromise:



Total, fully diluted shares
assuming all options/warrants and First Rights of Refusal are exercised:



|                 |  |             |  |                              |  
|---------------- |  | ----------- |  | ---------------------------- | -
|                 |  | Shares      |  | Percentage ofTotal Ownership |  
|Held by Accentia |  | 99,083,271  |  | 77.6                         | %
|Held by Others   |  | 28,673,855  |  | 22.4                         | %
|                 |  |             |  |                              |  
|                 |  | 127,757,126 |  | 100.0                        | %
|                 |  |             |  |                              |  



Subsequent to the
period covered by this report, the National Cancer Institute and Accentia Biopharmaceuticals released the following information concerning follow-up on the Phase II Clinical Trial of Biovaxid, the Companys therapeutic vaccine for indolent
follicular non-Hodgkins lymphoma now in a pivotal Phase III Clinical Trial:

In a previous single-arm Phase II study by Bendandi, et al (Nature Med
5:1171-1177, 1999), we evaluated the ability of tumor-specific idiotype (Id) conjugated to keyhole limpet hemocyanin (KLH) administered concurrently with granulocyte-monocyte colony-stimulating factor (GM-CSF) adjuvant to induce complete remissions
and molecular remissions in treated patients. The vaccine formulation induced a tumor-specific cytotoxic CD8+ and CD4+ T-cell response in patients in first complete remission (CR) after standard chemotherapy, as well as achieved
molecular remissions in 8 of 11 of these patients.We now report follow-up on these patients to date. In the median follow-up time of 9.9 years, overall survival is 95% and 11/20 patients are still in CR.1



As of the date of this filing, the Company has been approved by NASD for
trading on the Over the Counter Bulletin Board, and expects actual trading to commence within weeks.



---

1Carlos Santos, MS,
Accentia Biopharmaceuticals, Inc.; Lee Stern, MS, Accentia Biopharmaceuticals, Inc.; Laura Katz, MS, Accentia Biopharmaceuticals, Inc.; Thelma Watson, RN, National Cancer Institute; Barry Gause, MD, National Cancer Institute; BiovaxID[tm]
Vaccine Therapy of Follicular Lymphoma in First Remission: Long-Term Follow-Up of a Phase II Trial and Status of a Controlled, Randomized Phase III Trial.



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BIOVEST INTERNATIONAL, INC.



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.
| | --- | --------------------



| |  | None
| |  | ----



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BIOVEST INTERNATIONAL, INC.



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: August 15, 2005 |  | /s/ Dr. Steven Arikian              
|                      |  | Dr. Steven Arikian                  
|                      |  | Chairman and Chief Executive Officer
|                      | 
|Date: August 15, 2005 |  | /s/ James A. McNulty                
|                      |  | James A. McNulty                    
|                      |  | Chief Financial Officer             



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