FORM 10-QSB

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


              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2005
                            Commission File # 0-24875

                                BIOENVISION, INC.
        (Exact name of small business issuer as specified in its charter)



       Delaware                                         13-4025857
       --------                                         ----------
      State or other jurisdiction                       IRS
     of incorporation or organization                   Employer ID No.

                 345 Park Avenue, 41st Floor, New York, NY 10154
                 -----------------------------------------------
                    (Address of principal executive offices)

(Issuer's Telephone Number)      (212) 750-6700
                                 ------------------

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 twelve  months (or 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 ______ No __X___

As of June 27 , 2005, there were 40,558,948 shares of the issuer's common stock,
par value $.001 per share (the "Common Stock") outstanding.

Transitional Small Business Disclosure Format (Check One): YES [ ] No [X]





                                 C O N T E N T S





                                                                                                               Page
                                                                                                               ----
                                                                                                             

Condensed Consolidated Balance Sheets (Unaudited) -
As of March 31, 2005 and June 30, 2004- as restated                                                              1

Condensed Consolidated Statements of Operations (Unaudited) -
For the period ended March 31, 2005 and June 2004- as restated                                                   2

Condensed Consolidated Statements of Stockholders Equity (Unaudited) -
For the period ended March 31, 2005 and June 2004- as restated                                                   3

Condensed Consolidated Statements of Cash Flows (Unaudited) -
For the period ended March 31, 2005 and June 2004- as restated                                                   4

Notes to Condensed Consolidated Financial Statements (Unaudited) - as restated                                   5


Item 2.  Management's Discussion and Analysis of Financial Condition or Plan of Operation                       14

Item 3.  Controls and Procedures                                                                                19

Part II - Other Information                                                                                     22







                       Bioenvision, Inc. and Subsidiaries
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)



                                                                                    March 31,                  June 30,
                                                                                      2005                       2004
                                                                                 --------------             --------------
                                 ASSETS                                                                  (Restated - Note I)
                                                                                                        

Current assets
    Cash and cash equivalents                                                     $70,334,939                 $18,875,675
    Restricted cash                                                                   290,000                     290,000
    Deferred costs                                                                    231,171                     241,824
    Accounts receivable                                                             2,204,662                   2,627,773
    Inventory                                                                         433,335                           -
    Other current assets                                                              582,415                     253,311
                                                                                      -------                     -------

        Total current assets                                                       74,076,522                  22,288,583

    Property and equipment, net                                                       262,207                      47,857
    Intangible assets, net                                                         13,799,903                  14,563,660
    Goodwill                                                                        1,540,162                   1,540,162
    Security deposits                                                                 211,796                      79,111
    Deferred costs                                                                  3,483,419                   3,651,471
                                                                                    ---------                   ---------
        Total assets                                                              $93,374,009                 $42,170,844
                                                                                   ==========                  ==========

                   LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities
    Accounts payable                                                               $3,014,427                  $1,495,866
    Accrued expenses                                                                1,712,585                   1,322,584
    Accrued dividends payable                                                          55,479                      90,141
    Deferred revenue                                                                  498,607                     551,828
                                                                                      -------                   ---------

        Total current liabilities                                                   5,281,098                   3,460,419

Deferred revenue                                                                    7,562,251                   7,909,598
                                                                                    ---------                   ---------

        Total liabilities                                                          12,843,349                  11,370,017
Commitments and contingencies                                                               -                           -
 Stockholders' equity


    Convertible Preferred stock - $0.001 par value; 20,000,000 shares                   2,250                       3,342
      authorized; 2,250,000 and 3,341,666 shares issued and outstanding 
      at March 31, 2005 and June 30, 2004 (liquidation preference 
      $6,750,000 and $10,024,998, respectively)


    Common stock - par value $0.001; 70,000,000 shares authorized;                     40,449                      28,316
      40,448,948 and 28,316,163 shares issued and outstanding at March
      31, 2005 and June 30, 2004, respectively
    Additional paid-in capital                                                    128,684,678                  68,517,702
    Deferred compensation                                                            (158,280)                   (223,990)
    Accumulated deficit                                                           (48,155,869)                (37,664,141)
    Accumulated other comprehensive income                                            117,432                     139,598
                                                                                      -------                     -------

         Stockholders' equity                                                      80,530,660                  30,800,827
                                                                                   ----------                  ----------

         Total liabilities and stockholders' equity                               $93,374,009                 $42,170,844
                                                                                   ==========                  ==========



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





                       Bioenvision, Inc. and Subsidiaries
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)




                                                                   Three months ended                   Nine months ended
                                                                        March 31,                            March 31,
                                                               ------------------------               ----------------------
                                                               2005                2004               2005               2004
                                                           -----------          -----------        -----------        -----------
                                                                               (Restated -                            (Restated -
                                                                                 Note I)                                Note I)
                                                                                                           

Revenue
     Licensing and royalty revenue                           $430,411              $76,452         $1,012,068            $212,988
     Product sales                                            149,364                    -            364,495                   -
     Research and development contract revenue                819,194              770,042          2,283,657           1,545,042
                                                              -------              -------          ---------           ---------

             Total revenue                                  1,398,969              846,494          3,660,220           1,758,030

Costs and expenses
     Cost of products sold                                     99,061                    -            229,417                   -
     Research and development                               2,136,849              994,307          5,986,496           2,545,128
     Selling, general and administrative                    2,074,430            3,721,937          6,885,382           7,079,367
     (includes stock based compensation income
     (expense) of $713,116 and $(2,526,943) for the
     three months ended March 31, 2005 and 2004,
     respectively, and $(687,290) and $(3,625,535) for
     the nine months ended March 31, 2005 and 2004,
     respectively)
     Depreciation and amortization                            346,504              343,456          1,028,197           1,023,325
                                                            ---------            ---------         ----------          ----------

            Total costs and expenses                        4,656,844            5,059,700         14,129,492          10,647,820
                                                            ---------            ---------         ----------          ----------

Loss from operations                                       (3,257,875)          (4,213,206)       (10,469,272)         (8,889,790)

Interest income                                               185,465               14,576            297,479              49,465
                                                              -------               ------            -------              ------

Net loss before income tax benefit                         (3,072,410)          (4,198,630)       (10,171,793)         (8,840,325)

Income tax benefit                                                  -              506,087                  -           1,065,575
                                                          -----------          -----------       ------------         -----------

Net loss                                                   (3,072,410)          (3,692,543)       (10,171,793)         (7,774,750)

Cumulative preferred stock dividend                           (83,219)            (175,704)          (319,935)           (587,971)
                                                              -------             --------           --------            --------

Net loss available to common stockholders                 $(3,155,629)         $(3,868,247)      $(10,491,728)        $(8,362,721)
                                                          ===========          ===========       ============         ===========


Basic and diluted net loss per share of common stock          $(0.08)              $(0.19)            $(0.33)             $(0.46)
                                                              ======               ======             ======              ======

Weighted average shares used in computing                  37,602,163           19,912,396         31,907,864          18,122,445
     basic and diluted net loss per share                 ===========          ===========       ============         ===========


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


                                      -2-



                       Bioenvision, Inc. and Subsidiaries
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (unaudited)



                                                                                                             Accumu-

                                                                                                              lated

                                                                                                              Other 
                                                                       
                                                                       Addi-                                  Compre-      Total

                            Convertible                               tional                                 hensive       Stock-

                            Preferred Stock      Common Stock         Paid In     Deferred     Accumulated    Income      holders'

                            Shares       $      Shares       $        Capital   Compensation     Deficit      (Loss)       Equity
                            ------       -      ------       -        -------   ------------     -------      ------       ------

                                                                                            

Balance at July 1, 2003
(Restated - Note I)        5,916,966  $5,917  17,122,739  $17,123   $47,304,449   $      -    $(26,156,098) $ 152,346  $ 21,323,737
Net loss for the period
 (Restated - Note I)                                                                           (10,651,267)             (10,651,267)
Cumulative preferred
stock dividend for the
period                                                                                            (856,776)                (856,776)
Currency translation
adjustment                                                                                                    (12,748)      (12,748)

Deferred compensation                                                              (223,990)                               (223,990)
Shares issued in
connection with private
placement                                      2,602,898    2,603    16,265,495                                          16,268,098
Costs related to March
private placement
financing                                                            (1,301,035)                                         (1,301,035)
Preferred stock
converted to common
stock                     (2,575,300) (2,575)  5,150,000    5,150        (2,575)                                                  -
Expense related to
repricing of options                                                  2,381,066                                           2,381,066
Cashless exercise of
options to shares                              2,122,682    2,122        (2,122)                                                  -
Warrants issued in
connection with services                                        -       671,601                                             671,601
Shares issued to
consultants for services                          14,510       15       305,972                                             305,987
Shares issued to employee                         20,000       20        28,380                                              28,400
Options issued in
connection with services                                                 93,987                                              93,987
Options issued to
employees                                                               262,601                                             262,601
Shares issued from
warrant conversions                            1,283,334    1,283     2,509,883                                           2,511,166
                           ---------  ------  ----------  -------   -----------   ----------  ------------  ---------  ------------

 Balance at June 30,
 2004 (Restated - Note I)  3,341,666  $3,342  28,316,163  $28,316   $68,517,702   $(223,990)  $(37,664,141) $ 139,598  $ 30,800,827




Net loss for the period                                                                        (10,171,793)             (10,171,793)
Cumulative preferred
stock dividend for the
period                                                                                            (319,935)                (319,935)
Currency translation
adjustment                                                                                                    (22,166)      (22,166)

Deferred compensation                                                                65,710                                  65,710
Warrants issued in
connection with services                                                509,686                                             509,686
Options issued in
connection with services                                                 46,369                                              46,369
Preferred stock converted
to common stock           (1,091,666) (1,092)  2,183,332    2,183        (1,092)                                                  -
Shares issued in
connection with public
offering net of related
 expenses                                      7,500,000    7,500    55,642,500                                          55,650,000
Shares issued from
warrant conversion                             1,598,411    1,598     3,277,365                                           3,278,963
Cash exercise of options
to shares                                        575,833      576       626,898                                             627,474
Cashless exercise of
options to shares
(non-employees)                                  212,709      213         (213)                                                   -
Shares issued in
connection with services                          62,500       63       496,188                                             496,250

Expenses (income) related
to repricing of options                                                (430,725)                                           (430,725)

                           ---------  ------  ----------  -------  ------------   ----------  ------------  ---------  ------------
   Balance at 
   March 31, 2005          2,250,000  $2,250  40,448,948  $40,449  $128,684,678   $(158,280)  $(48,155,869) $ 117,432  $ 80,530,660
                           =========  ======  ==========  =======  ============   ==========  ============  =========  ============



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


                                      -3-



                       Bioenvision, Inc. and Subsidiaries
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)




                                                                                          Nine months ended
                                                                                              March 31,
                                                                                -------------------------------------
                                                                                     2005                  2004
                                                                                --------------         --------------
                                                                                                     Restated - Note 1
                                                                                                    

 Cash flows from operating activities
     Net loss                                                                   $(10,171,793)             $(7,774,750)
     Adjustments to reconcile net loss to net
        cash used in operating activities
          Depreciation and amortization                                            1,028,197                1,023,325
          Deferred tax benefit                                                             -               (1,065,575)
          Stock based compensation                                                   687,290                3,625,535
          Changes in net deferred revenue and expenses                              (221,863)               2,655,463
          Changes in assets and liabilities
              Accounts payable                                                     1,496,396                  721,607
              Inventory                                                             (433,335)                       -
              Other current assets                                                  (329,104)                 (81,628)
              Security deposits                                                     (132,686)                  96,868
              Accounts receivable                                                    423,111               (2,615,263)
              Accrued expenses                                                       390,003                 (237,353)
                                                                                     -------                 ---------

                     Net cash used in operating activities                        (7,263,784)              (3,651,771)

 Cash flows from investing activities
     Purchase of intangible assets                                                  (241,998)                 (30,772)
     Capital expenditures                                                           (236,793)                  (3,116)
                                                                                   ----------               -----------

                     Net cash used in investing activities                          (478,791)                 (33,888)

 Cash flows from financing activities
     Proceeds from issuance of common stock, net of related expenses              55,650,000               12,157,240
     Proceeds from exercise of options, warrants and other convertible
     securities                                                                    3,906,436                1,157,546
     Dividends paid                                                                 (354,597)                    -
                                                                                   ----------               ---------

                Net cash provided by financing activities                         59,201,839               13,314,786

 Net increase in cash and cash equivalents                                        51,459,264                9,629,127

 Cash and cash equivalents, beginning of period                                   18,875,675                7,929,686
                                                                                  ----------                ---------

 Cash and cash equivalents, end of period                                        $70,334,939              $17,558,813
                                                                                  ==========               ==========



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


                                      -4-



                       BIOENVISION, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 March 31, 2005

                                   (Unaudited)

NOTE A - Description of Business and Significant Accounting Policies

Description of Business

Bioenvision,  Inc.  is a  product-focused  biopharmaceutical  company  with  two
approved  cancer  therapeutics.  On December 29, 2004, the FDA approved our lead
cancer product,  clofarabine, for the treatment of pediatric acute lymphoblastic
leukemia,  or ALL, in patients  who have  received  two or more prior  regimens.
Clofarabine  has received  Orphan Drug  designation in the U.S. and the European
Union.  Genzyme Corporation,  the Company's  co-development  partner,  currently
holds marketing rights in the U.S. and Canada for clofarabine for certain cancer
indications and controls U.S.  development of clofarabine in these  indications.
Genzyme  is  selling  clofarabine  under the brand  name  Clolar in the U.S.  In
Europe,  the Company has filed for approval of  clofarabine in pediatric ALL and
pediatric  acute  myelogenous  leukemia,  or AML,  with the  European  Medicines
Evaluation Agency, or EMEA.

The Company is currently selling its second product,  Modrenal(R), in the United
Kingdom.   Modrenal(R)   is  approved  in  the  U.K.   for  the   treatment   of
post-menopausal  advanced  breast cancer  following  relapse to initial  hormone
therapy, and the Company has initiated the filing process for mutual recognition
in the E.U. on a country-by-country basis.

In addition to clofarabine and Modrenal(R),  the Company is developing Velostan,
initially for the treatment of bladder cancer,  and Virostat,  initially for the
treatment of Hepatitis C.

Significant Accounting Policies

In addition to the accounting  policies  reported in Note 1 to the  consolidated
financial  statements -- "Organization and significant  accounting  policies" in
the Company's  annual report on Form 10-KSB for the year ended June 30, 2004, we
deem the following recent  accounting  policies to be important in understanding
our operating results and financial condition.

Revenue Recognition

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

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

The Company currently sells its products to wholesale  distributors and directly
to  hospitals,  clinics,  and retail  pharmacies.  Revenue from product sales is
recognized  when the risk of loss is passed to the customer,  the sales price is
fixed and determinable, and collectibility is reasonably assured.

The Company  follows the guidance of Emerging  Issues Task Force ("EITF") 99-19,
"Reporting  Revenue  Gross  as a  Principal  versus  Net  as an  Agent"  in  the
presentation  of revenues and direct costs of revenues.  This guidance  requires
the Company to assess whether it acts as a principal in the transaction or as an
agent acting on behalf of others. The Company records revenue transactions gross
in  its  statements  of  operations  if  it  is  deemed  the  principal  in  the
transaction,  which includes being the primary  obligor and having the risks and
rewards of ownership.

In May 2003,  the EITF  reached a consensus  on EITF Issue No.  00-21,  "Revenue
Arrangements with Multiple


                                      -5-



Deliverables"  ("EITF 00-21").  EITF 00-21 provides guidance on how to determine
when an  arrangement  that involves  multiple  revenue-generating  activities or
deliverables  should be divided into separate  units of  accounting  for revenue
recognition  purposes,  and if this  division is required,  how the  arrangement
consideration  should be allocated  among the separate units of accounting.  The
guidance in the consensus is effective for revenue  arrangements entered into in
quarters  beginning  after June 15,  2003.  The  adoption  of EITF 00-21 did not
impact the Company's  consolidated  financial  position or results of operations
because the Company had already followed a revenue  recognition model consistent
with EITF 00-21.

Credit Risk

Our accounts  receivable are primarily due from wholesale  distributors  and our
co-development  partners. Based on our evaluation of the collectibility of these
accounts  receivable,  we believe the exposure to credit risk is minimal and, as
such, we feel that no allowance for doubtful  accounts is necessary at March 31,
2005 and June 30, 2004.

Inventory

Inventories  are  stated at the lower of cost or market,  cost being  determined
under  the  first-in,   first-out  method.  The  Company   periodically  reviews
inventories  and items  considered  outdated  or  obsolete  are reduced to their
estimated  net  realizable  value.  Inventories  consisted  of  $125,211  of raw
material,  $218,160 of work-in-progress,  and $89,964 of finished goods at March
31, 2005.

Accounting for Stock-Based Compensation

At March 31,  2005,  the Company has stock  based  compensation  plans which are
described more fully in the Company's  annual report on Form 10-KSB for the year
ended June 30, 2004. As permitted by Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock Based Compensation," and amended by SFAS
148,  the  Company  accounts  for  stock  based  compensation   arrangements  in
accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25
"Accounting  for Stock  Issued to  Employees."  Compensation  expense  for stock
options  issued to  employees is based on the  difference  on the date of grant,
between  the fair value of the  Company's  stock and the  exercise  price of the
option. Under APB Opinion No. 25, no stock-based  employee  compensation cost is
reflected  in reported  net loss,  when  options  granted to  employees  have an
exercise price equal to the market value of the  underlying  common stock at the
date of grant.

The following table summarizes the pro forma effect of stock-based  compensation
as if the fair value method of accounting  for stock options had been applied in
measuring  compensation cost. No tax benefits were attributed to the stock-based
employee  compensation  expense during the three and nine months ended March 31,
2005  and 2004  because  there  is no  incremental  tax  effect  related  to the
additional expense incurred.





                                                           Three months ended                 Nine months ended
                                                                March 31,                         March 31,
                                                                ---------                         ---------
                                                           2005             2004             2005            2004
                                                           ----             ----             ----            ----
                                                                       (As restated)                     (As restated)
                                                                                             
Net loss available to common stockholders,             $ (3,155,629)   $   (3,868,247)  $ (10,491,728)   $ (8,362,721)
as reported
Add:  Stock-based employee compensation expense
(income) included in reported net loss                     (628,508)        1,962,337        (365,016)      2,616,245

Deduct:  Total stock-based employee compensation
expense determined under fair value based method
for all awards                                           (1,268,146)         (194,060)     (1,859,343)       (407,438)
                                                         ----------          --------      ----------        --------

Pro forma net loss                                     $ (5,052,283)   $   (2,099,970)  $ (12,716,087)   $ (6,153,914)
Loss per share
     Basic and diluted - as reported                   $      (0.08)   $        (0.19)  $       (0.33)   $      (0.46)

     Basic and diluted - pro forma                     $      (0.13)   $        (0.11)  $       (0.40)   $      (0.34)



The weighted-average  assumptions used for the three and nine months ended March
31,  2005  were:  risk-free  interest  rate of 3.40%  and  3.36%,  respectively;
expected  dividend  yield  of  0.0%,  expected  life of  3.95  and  3.88  years,


                                      -6-



respectively;   and  expected   volatility   of  80%  for  both   periods.   The
weighted-average  assumptions used for the three and nine months ended March 31,
2004 were:  risk-free interest rate of 2.19% and 2.21%,  respectively;  expected
dividend  yield of 0.0%,  expected life of 3.5 years and expected  volatility of
80% for both periods.

During  2005,  the  Company  corrected  an error on the  pro-forma  stock  based
compensation  disclosures  required under SFAS 123  determined  under fair value
based method in the table above.  The Company failed to add back to net loss the
stock  based  compensation  recorded  by the  Company  in  connection  with  the
repricing  of an  officer's  options  and  deduct  the fair  value of the  award
calculated under SFAS 123. This has decreased such amounts  previously  reported
in the proforma net loss for the three month and nine month  periods ended March
31, 2004 by $1,909,000 and $2,475,000, respectively.

In December 2004, the Financial  Accounting Standards Board ("FASB") issued SFAS
No.  123R,  "Share  Based  Payment",   requiring  all  share-based  payments  to
employees,  including  grants of employee  stock  options,  to be  recognized as
compensation  expense in the consolidated  financial statements based upon their
fair values. As amended by the SEC on April 14, 2005, this standard is effective
for the quarter beginning July 1, 2005 and includes two transition methods. Upon
adoption,  we  will  be  required  to  use  either  the  modified  retrospective
transition  method or the  modified  prospective  transition  method.  Under the
modified  retrospective  transition method, the previously  reported amounts are
restated for all periods presented to reflect the SFAS 123 amounts in the income
statement.  Under the modified  prospective  transition method,  awards that are
granted,  modified or settled after the date of adoption  should be measured and
accounted for in accordance with SFAS 123R.  Unvested  equity-classified  awards
that were granted  prior to the effective  date should  continue to be accounted
for in  accordance  with SFAS 123 except that amounts must be  recognized in the
income  statement.  We are currently  evaluating the impact of this standard and
its transitional alternatives.

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

Net Loss Per Share

Basic net loss per share is computed using the weighted average number of common
shares  outstanding  during the periods.  Diluted net loss per share is computed
using the weighted  average  number of common  shares and  potentially  dilutive
common shares outstanding  during the periods.  Options and warrants to purchase
11,572,415 and  13,145,020  shares of common stock have not been included in the
calculation  of net loss per share for the three  months and nine  months  ended
March  31,  2005  and  2004,  respectively,  as their  effect  would  have  been
anti-dilutive.

Comprehensive Loss

Total  comprehensive loss for the three months ended March 31, 2005 and 2004 was
$ (3,186,208) and $(3,868,247),  respectively.  Total comprehensive loss for the
nine months ended March 31, 2005 and 2004 was $(10,513,894) and $(8,362,721).

Recent Accounting Pronouncements

In December  2004, the FASB issued SFAS 153 "Exchange of  Non-monetary  assets".
This  statement  was a  result  of a joint  effort  by the  FASB and the IASB to
improve financial  reporting by eliminating  certain narrow differences  between
their existing accounting standards.  One such difference was the exception from
fair value  measurement  in APB Opinion  No. 29,  "Accounting  for  Non-Monetary
Transactions", for non-monetary exchanges of similar productive assets. SFAS 153
replaces this exception with a general exception from fair value measurement for
exchanges  of  non-monetary  assets  that do not have  commercial  substance.  A
non-monetary  exchange has commercial  substance if the future cash flows of the
entity are expected to change  significantly  as a result of the exchange.  This
statement is effective for  non-monetary  assets  exchanges  occurring in fiscal
periods beginning after June 15, 2005.

In November  2004,  the FASB issued SFAS No. 151,  "Inventory  Costs".  SFAS 151
amends  Accounting  Research  Bulletin ("ARB") No. 43, Chapter 4. This statement
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling  costs,  and wasted  material  (spoilage).  SFAS 151 is the result of a
broader  effort  by the FASB  and the IASB to  improve  financial  reporting  by
eliminating   certain  narrow  differences  between  their  existing  accounting
standards.  This  statement is effective for  inventory  costs  incurred  during
fiscal years beginning after June 15, 2005.


                                      -7-



The  adoption  of SFAS 151 is not  expected  to have a  material  impact  on the
results of operations or financial position of the company.

NOTE B - Interim Financial Statements

In the opinion of management,  the accompanying unaudited condensed consolidated
financial  statements  contain all the adjustments  consisting of normal accrued
adjustments  necessary to present fairly the consolidated  financial position of
the Company as of March 31, 2005, the consolidated results of operations for the
three  months and nine  months  ended  March 31,  2005 and 2004,  the  Condensed
Consolidated  Statements of Stockholders  Equity for the nine months ended March
31,  2005,  and cash flows for the nine  months  ended  March 31, 2005 and 2004.
Certain  reclassifications  of balances  previously  reported  have been made to
conform to the current presentation.

The condensed  consolidated balance sheet at June 30, 2004 has been derived from
the  audited  financial  statements  at that date,  but does not include all the
information and footnotes required by accounting  principles  generally accepted
in the United States for complete financial statements. For further information,
refer to the audited  consolidated  financial  statements and footnotes  thereto
included  in the Form  10-KSB  filed by the  Company for the year ended June 30,
2004.

The condensed  consolidated  results of operations for the three months and nine
months  ended  March 31,  2005 and 2004 are not  necessarily  indicative  of the
results to be expected for any other interim period or for the full year.

NOTE C - License and Co-Development Agreements

Clofarabine

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

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

To facilitate the development of clofarabine, in March 2001, the Company entered
into  a  co-development   agreement  with  ILEX  Oncology,  Inc.  ("ILEX"),  our
sub-licensor  until  it was  acquired  by  Genzyme  Corporation  ("Genzyme")  on
December 21, 2004, for the  development  of  clofarabine in cancer  indications.
Under the terms of the co-development agreement,  Genzyme is required to pay all
development  costs  in the  United  States  and  Canada,  and  50%  of  approved
development  costs worldwide  outside the U.S. and Canada  (excluding  Japan and
Southeast  Asia),  in each case,  for the  development  of clofarabine in cancer
indications.  Genzyme is responsible  for conducting all clinical trials and the
filing and prosecution of applications with applicable regulatory authorities in
the United States and Canada for certain cancer indications. The Company retains
the right to handle those matters in all  territories  outside the United States
and Canada  (excluding Japan and Southeast Asia) and retains the right to handle
these matters in the U.S. and Canada in all non-cancer indications.  The Company
retained  the  exclusive  manufacturing  and  distribution  rights in Europe and
elsewhere worldwide,  except for the United States,  Canada, Japan and Southeast
Asia. Under the co-development agreement, Genzyme will have certain rights if it
performs its  development  obligations in accordance  with that  agreement.  The
Company  would be required  to pay Genzyme a royalty on sales  outside the U.S.,
Canada,  Japan and Southeast Asia. In turn,  Genzyme,  which would have U.S. and
Canadian  distribution  rights in cancer  indications,  would pay the  Company a
royalty on sales in the U.S. and Canada.  Under the terms of the  co-development
agreement,  Genzyme also pays royalties to Southern Research  Institute based on
certain  milestones.  The Company also is obligated to pay certain  royalties to
Southern Research Institute with respect to clofarabine.

The Company  received a  nonrefundable  upfront payment of $1.35 million when it
entered  into  the  co-development   agreement  with  Genzyme  and  received  an
additional $3.5 million in December 2003 when it converted  Genzyme's  option to
market clofarabine in the U.S. into a sublicense.  Upon Genzyme's filing the New
Drug  Application for clofarabine  with FDA, the Company  received an additional
(i) $2 million in April 2004 and (ii) $2 million in September


                                      -8-



2004. The Company deferred the upfront payment and recognized  revenues ratably,
on a straight-line basis over the related service period, through December 2002.
The Company has deferred the milestone  payments received to date and recognizes
revenues  ratably,  on a straight  line basis over the related  service  period,
through  March 2021.  For the three  months  ended March 31, 2005 and 2004,  the
Company   recognized   revenues  of   approximately   $110,000,   and   $22,000,
respectively,  in connection with the milestone  payments  received to date. For
the nine months ended March 31, 2005 and 2004, the Company  recognized  revenues
of approximately  $329,000,  and $51,000,  respectively,  in connection with the
milestone payments received to date.

Deferred costs include royalty  payments that became due and payable to SRI upon
the  Company's  execution of the  co-development  agreement  with  Genzyme.  The
Company  defers all  royalty  payments  made to SRI and  recognizes  these costs
ratably,  on a straight-line basis concurrent with revenue that is recognized in
connection  with research and  development  costs  including  approximately  (i)
$55,000  and  $11,000  for the  three  months  ended  March  31,  2005 and 2004,
respectively,  and (ii) $165,000 and $26,000 for the nine months ended March 31,
2005 and 2004, respectively related to such charges.

Modrenal(R)

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

The Company  received a  nonrefundable  upfront payment of $1.25 million when it
entered into the License and Sublicense Agreement with Dechra Pharmaceuticals in
May 2003.  The Company  deferred  the upfront  payment and  recognizes  revenues
ratably,  on a straight-line  basis over the related  service period,  currently
through September 2022. The Company recognized revenues of approximately $15,000
and $29,000 in  connection  with the upfront  payment  from Dechra for the three
months  ended March 31,  2005 and 2004,  respectively.  The  Company  recognized
revenues of  approximately  $72,000 and $87,000 in  connection  with the upfront
payment  from  Dechra  for the nine  months  ended  March  31,  2005  and  2004,
respectively.

Deferred costs include  royalty  payments that became due and payable to Stegram
Pharmaceuticals Ltd. upon the Company's execution of the License and Sub-License
Agreement with Dechra in May 2003. The Company defers all royalty  payments made
to  Stegram  and  recognizes  these  costs  ratably,  on a  straight-line  basis
concurrent  with  revenue  that is  recognized  in  connection  with the  Dechra
agreement.  Research and  Development  costs related to this  agreement  include
approximately  $3,000 and $6,000 for the three  months  ended March 31, 2005 and
2004,  respectively.  Research and  Development  costs related to this agreement
include  approximately  $14,000 and $18,000 for the nine months  ended March 31,
2005 and 2004, respectively.

Operational Developments

The  Company  submitted  a  Marketing  Authorization  Application,  or MAA,  the
European  equivalent  of a U.S. new drug  application,  or NDA, with the EMEA in
July 2004 for  European  approval  of  clofarabine  in  relapsed  or  refractory
pediatric acute leukemia.

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

In June 2003, the Company  entered into a development  agreement with Ferro,  as
amended and  restated on December  31,  2004,  pursuant to which Ferro agreed to
perform  certain  development  activities to scale up,  develop,  finalize,  and
supply  Clinical  Trials  Monitor and GMP  supplier  qualifications  of the API.
Subject to certain circumstances,  this agreement expires upon the completion of
the  development  program.  The  development  agreement is  milestone-based  and
payments  are to be paid upon  completion  of each  milestone.  If Ferro has not
completed the development  agreement by December 2007, the development agreement
will automatically terminate without further action by either party.

In May 2003, we entered into a sub-license  agreement  with Dechra,  pursuant to
which Dechra has been granted a sub-license for all of the Company's  rights and
entitlements  to market and  distribute  Modrenal(R)  in the  United  States and
Canada solely in connection with animal health applications.  Subject to certain
circumstances, this agreement expires


                                      -9-



upon  expiration of the last patent  related to Modrenal(R) or the completion of
the last royalty set forth in the  agreement.  Cumulatively,  through  March 31,
2005,  we have  recognized  revenue  and  costs  related  to this  agreement  of
approximately $198,000 and $40,000 respectively. The Company received an upfront
non-refundable payment of $1.25 million upon execution of this agreement and may
receive up to an  additional  $3.75  million upon the  achievement  by Dechra of
certain milestones set forth in the agreement.

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

In April 2003, we entered into an exclusive  license  agreement with  CLL-Pharma
("CLL"),  pursuant to which CLL has agreed to perform certain  development works
and studies to create a new formulation of  Modrenal(R).  CLL intends to use its
proprietary   MIDDS.-patented   technology   (Micellar  Improved  Drug  Delivery
Solution)  to  perform  this  service  on  behalf  of  the  Company.   This  new
formulation,  once in hand,  will  allow  the  Company  to apply  for  necessary
authorization,  as required by applicable European health  authorities,  to sell
Modrenal(R)  throughout  Europe.  Through  March 31,  2005,  the Company paid an
advance of  $175,000  related to  development  services  provided by CLL over an
eighteen  month  period,  which  advance  was  initially  recorded  as a prepaid
development cost by the Company.

NOTE D- Intangible Assets

                                         3/31/2005      6/30/2004
                                         ---------      ---------
Patents & Trademarks                  $  17,999,099   $  17,757,101
Accumulated Amortization                 (4,199,196)     (3,193,441)
                                      ------------------------------

                                      $  13,799,903   $  14,563,660
                                      ==============================

Amortization of patents and trademarks amounted to $1,006,000 and $1,009,000 for
the nine months ended March 31, 2005 and 2004,  respectively.  Intangible assets
are recorded at cost and  amortized  over periods  generally  ranging from 10-20
years. Amortization for each of the next five fiscal years is expected to amount
to approximately $1,343,000 annually.

NOTE E - Equity Transactions

In June 2002,  the  Company  granted  options  to an  officer of the  Company to
purchase 380,000 shares of common stock at an exercise price of $1.95 per share,
which equaled the fair value on the date of grant. Of this amount 50,000 options
vested on June 28, 2002 and the  remaining  330,000  options vest ratably over a
three-year  period on each  anniversary  date.  On March 31,  2003,  the Company
entered into an Employment Agreement with such officer of the Company,  pursuant
to which,  among other things, the exercise price for all of the 380,000 options
were changed to $0.735 per share, which equaled the stock price on that date. In
addition,  the Company issued an additional 120,000 options at an exercise price
of $.735 per share which vested immediately. As a result of the repricing of all
of the 380,000  options,  the Company  remeasured  the intrinsic  value of these
options at the end of each reporting period based on changes in the stock price.
For the three months ended March 31, 2005 and 2004 the Company  recognized stock
based  employee  compensation  income  (expense) of  approximately  $650,000 and
$(1,944,000),  respectively,  as a result of the March 31, 2003 re-pricing.  For
the nine months ended March 31, 2005 and 2004 the Company recognized stock based
employee   compensation   income   (expense)  of   approximately   $431,000  and
$(2,598,000), respectively.

For the three  months  ended  March  31,  2005 and 2004,  the  Company  recorded
compensation expense of approximately  $22,000 and $18,000,  respectively,  as a
result of options granted to certain employees.  For the nine months ended March
31, 2005 and 2004, the Company  recorded  compensation  expense of approximately
$66,000 and  $18,000,  respectively,  as a result of options  granted to certain
employees.

On January 20, 2004,  the Company  granted  25,000 options to a board member for
serving as a member of the Board of Directors, at an exercise price of $4.55 per
share  which vest  ratably on the first and  second  anniversaries  of the grant
date. The Company  recognized  approximately  $12,000 and $9,000 as a consulting
expense for the three  months  ended  March 31,  2005 and 2004  relating to said
options. The Company recognized approximately $35,000 and $9,000 as a


                                      -10-



consulting expense for the nine months ended March 31, 2005 and 2004 relating to
said options.

On January 6, 2005,  the Company  granted  7,500  options to a board  member for
serving as a member of the Board of Directors, at an exercise price of $8.17 per
share which 1,875 vest  immediately  on the grant date and the  remaining  5,625
vest ratably on the first, second and third anniversaries of the grant date. The
Company recognized  approximately  $11,000 as a consulting expense for the three
and nine months ended March 31, 2005.

On June 22, 2004, the Company  entered into a consulting  agreement  pursuant to
which the consultant will provide certain investor  relations services on behalf
of the Company.  In connection  therewith,  the Company issued a warrant to said
consultant  pursuant to which he has the right to purchase  50,000 shares of the
Company's  common  stock at a price of $8.25 per share  upon the  completion  of
certain  milestones,  as set forth in such  agreement.  The  Company  recognized
approximately  $243,000 as a consulting  expense for the nine months ended March
31, 2005.

On August 4, 2004,  the  Company  issued a warrant to a  consultant  pursuant to
which said  consultant has the right to purchase  40,000 shares of the Company's
common  stock  at a price  of $7.22  per  share  upon  satisfaction  of  certain
milestones included in the warrant. The Company recognized approximately $44,000
as consulting  income and approximately  $125,000 as consulting  expense for the
nine months ended March 31, 2005, relating to said warrants.

On August 9, 2004, the Company  issued two warrants to a consultant  pursuant to
which said  consultant has the right to purchase  45,000 shares of the Company's
common stock at a price of $6.10 per share. The Company recognized approximately
$57,000 as  consulting  expense  for the three  months  ended March 31, 2005 and
approximately  $142,000 as a consulting  expense for the nine months ended March
31, 2005 relating to said warrants.

For the three and nine months ended March 31, 2005, the Company  granted 651,000
and 774,000  options to certain  employees at exercise prices ranging from $5.44
to $8.87 per share,  respectively.  No expense was  recognized for the three and
nine months ended March 31, 2005 in  connection  with said grants as each option
was granted at fair market value.

On December 3, 2004, we issued 62,500 shares of common stock to a consultant for
services rendered. In connection with such issuance we recognized  approximately
$497,000 as  compensation  expense for the three and nine months ended March 31,
2005.

During the three  months ended March 31, 2005,  certain  warrant  holders of the
Company  exercised  their  warrants to acquire  20,442  shares of the  Company's
common stock. The Company received proceeds of approximately  $24,000 during the
three months ended March 31, 2005 from the exercise of such warrants. During the
nine  months  ended  March 31,  2005,  certain  warrant  holders of the  Company
exercised  their warrants to acquire  1,598,411  shares of the Company's  common
stock. The Company received proceeds of approximately $3,279,000 during the nine
months ended March 31, 2005 from the exercise of such warrants.

During the three month period ended March 31, 2005,  certain  holders of options
to purchase an aggregate of 437,715  shares of the  Company's  common stock were
exercised.  The Company received  proceeds of approximately  $259,000 during the
three months ended March 31, 2005 from the exercise of such options.  During the
nine month period ended March 31, 2005,  certain  holders of options to purchase
an aggregate of 788,542 shares of the Company's common stock were exercised. The
Company received proceeds of approximately $627,000 during the nine months ended
March 31, 2005 from the exercise of such options.

On February 8, 2005, we completed a secondary  public  offering in which we sold
we sold  7,500,000  common  shares at $8.00 per share,  with net proceeds to the
Company of approximately $55.6 million,  after deducting  underwriting discounts
and commissions and estimated offering expenses.

NOTE F-Quarterly Tax Accounting Policy

Income taxes have been  provided for using the  liability  method in  accordance
with SFAS No. 109, "Accounting for Income Taxes." The provision for income taxes
reflects  management's  estimate  of  the  effective  tax  rate  expected  to be
applicable for the full fiscal year. This estimate is re-evaluated by management
each quarter  based on the  Company's  estimated  tax expense for the year.  The
Company also pays capital  stock tax to certain  state and local  jurisdictions.
The Company evaluates the amount due on a quarterly basis.

NOTE G - Related Party Transactions


                                      -11-



In May 2002,  we  completed a private  placement  pursuant to which we issued an
aggregate of 5,916,666  shares of Series A convertible  participating  preferred
stock for $3.00 per share and  warrants to purchase an  aggregate  of  5,916,666
shares of common stock and in March of 2004 we  consummated a private  placement
pursuant to which we raised $12.8  million with a second  closing in May 2004 in
which we raised an additional $3.5 million. An affiliate of SCO Capital Partners
LLC,  one of our  stockholders,  served as  financial  advisor to the Company in
connection  with these  financings  and earned a placement fee of  approximately
$1.2 million in connection  with May 2002 private  placement and a placement fee
of $1.1  million and  warrants to purchase  260,290  shares of common  stock for
$6.25 per share for the March and May 2004 financings.

NOTE H - Litigation

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

NOTE I - Restatement

In May of 2005,  the Company  identified an error with respect to the accounting
for income  taxes in  connection  with the  Pathagon  acquisition  completed  on
February 1, 2002. The Company had originally  concluded that the  realization of
the deferred tax asset related to the net operating  losses and other deductible
temporary  differences existing at the acquisition date, and generated after the
acquisition  date,  did not meet the "more likely than not"  criteria  and, as a
result, a valuation  allowance was established on the deferred tax assets of the
Company.  The  Company's  restated  accounting  treatment  determined  that  the
deferred tax  liability  recorded in  connection  with the Pathagon  acquisition
creates   taxable  income  as  the  taxable   temporary   differences   reverse.
Consequently,  the ability to realize the  deferred  tax assets is "more  likely
than not" and a valuation  allowance  is not  required  against the deferred tax
assets,  to the extent the  deferred  tax  liability  offsets the  deferred  tax
assets.  This restated  accounting  treatment resulted in the recognition of our
deferred tax assets to the extent of our deferred tax liabilities.  The deferred
tax asset,  in excess of the  deferred tax  liability,  is not "more likely than
not"  to be  realized,  and  therefore,  a full  valuation  allowance  has  been
established against the net deferred tax asset.

The Company  restated  its  previously  reported  financial  statements  and all
interim  periods as of and for the years ended June 30, 2004 and 2003, to record
additional  benefit  relating  to the  recognition  of  deferred  tax  assets as
indicated  in the first  paragraph  of this note.  In years ended June 30, 2004,
June 30, 2003, and June 30, 2002, the Company previously  recorded the reduction
to the  deferred  tax  liability  and a  corresponding  tax benefit of $537,000,
$537,000 and $253,000,  respectively.  In the restated financial  statements for
years ended June 30, 2004 and June 30, 2003, the Company  recorded  deferred tax
assets,  with a  corresponding  additional  deferred tax benefit of $923,000 and
$1,580,000,  respectively,  offsetting the deferred tax liability resulting from
the Pathagon acquisition.  Additionally,  as of the acquisition date on February
1, 2002, a deferred tax asset was recorded for $2,363,000  with a  corresponding
reduction to goodwill.  This represented the deferred tax assets that existed at
the  date of  acquisition  and  for  which  the  previously  recorded  valuation
allowance was eliminated.

As a result of the above,  the  Company  previously  restated  its  consolidated
financial statements as of June 30, 2004 in its Form 10-KSB/A.  The following is
a summary  of the  effects  of the  income  tax  accounting  corrections  on the
Company's  consolidated financial statements for the three and nine months ended
March 31, 2004,  and for the three months ended  September 30, 2004 and December
31, 2004.

For the three and six months ended September 30, 2004 and December 31, 2004, the
Company had recorded a deferred tax liability  for  $5,647,000  and  $5,505,000,
respectively. Due to the correction of an error, the Company has now reported no
net  deferred tax asset or deferred tax  liability  for the three,  six and nine
months ended September 30, 2004, December 31, 2004 and March 31, 2005.




                                              Three months ended March 31, 2004               Nine months ended March 31, 2004
                                            As Reported            As Restated               As Reported             As Restated
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    

Consolidated Statements of Operations:

Income tax benefit                      $       134,351      $         506,087         $        402,928         $     1,065,575



                                      -12-





                                                                                                    

Net loss                                     (4,064,277)            (3,692,543)             (8,437,397)              (7,774,750)
Net loss available to common                 (4,239,982)            (3,868,247)             (9,025,369)              (8,362,721)
stockholders

Basic and diluted net loss per share    $         (0.21)     $           (0.19)        $         (0.50)         $         (0.46)
of common stock


The restatement has no effect on total cash flows from operating,  investing, or
financing  activities  as shown in the  Consolidated  Statement  of Cash  Flows.
However,  the restatement  did affect the individual  components of net loss and
deferred tax benefit within the net cash from operating activities.




---------------------------------------------------------------------------------------------------------
2005                           First Quarter      First Quarter    Second Quarter      Second Quarter
                               (as reported)      (as restated)    (as reported)       (as restated)
---------------------------------------------------------------------------------------------------------
                                                                             

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

---------------------------------------------------------------------------------------------------------
Goodwill                          3,902,705          1,540,162        3,902,705          1,540,162
---------------------------------------------------------------------------------------------------------
Total assets                     41,337,877         38,975,334       41,564,030         39,201,487
---------------------------------------------------------------------------------------------------------
Deferred tax liability            5,646,573                  -        5,505,486                  -
---------------------------------------------------------------------------------------------------------
Total liabilities                16,471,168         10,824,595       16,209,427         10,703,941
---------------------------------------------------------------------------------------------------------
Accumulated deficit             (44,169,063)       (40,885,033)     (48,143,183)       (45,000,239)
---------------------------------------------------------------------------------------------------------
Shareholder's equity            24,866,709          28,150,739       25,354,603         28,497,546
---------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------
Revenue                           1,085,328          1,085,328        1,175,923          1,175,923
---------------------------------------------------------------------------------------------------------
Loss before income tax           (3,094,551)        (3,094,551)      (4,004,831)        (4,004,831)
benefit
---------------------------------------------------------------------------------------------------------
Income tax benefit                  134,226                  -          141,087                  -
---------------------------------------------------------------------------------------------------------
Net loss                         (2,960,325)        (3,094,551)      (3,863,744)        (4,004,831)
---------------------------------------------------------------------------------------------------------
Net loss available to common     (3,086,666)        (3,220,892)      (3,974,119)        (4,115,206)
shareholders
---------------------------------------------------------------------------------------------------------
Net loss available to common         $(0.11)            $(0.11)          $(0.13)            $(0.14)
shareholders per basic and
dilutive share
---------------------------------------------------------------------------------------------------------


The quarterly net loss per common share amounts are rounded to the nearest cent.
Annual  net loss per  common  share  may vary  depending  on the  effect of such
rounding.

Additionally,  the Company  restated  the  pro-forma  stock  based  compensation
disclosures required under SFAS 123 determined under fair value based method due
to the correction of an error noted during  February  2005.  Refer to Note 1 for
further discussion.


                                      -13-



                       BIOENVISION, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION OR PLAN OF
OPERATION

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

The  following  discussion  and analysis of  significant  factors  affecting the
Company's operating results,  liquidity and capital resources and should be read
in conjunction with the accompanying financial statements and related notes.

Overview and Company Status

We are a  product-focused  biopharmaceutical  company with two  approved  cancer
therapeutics.  On December 29, 2004,  the FDA approved our lead cancer  product,
clofarabine,  for the treatment of pediatric acute  lymphoblastic  leukemia,  or
ALL,  in  patients  who have  received  two or more prior  regimens.  We believe
clofarabine  is the first new medicine  initially  approved in the United States
for  children  with  leukemia in more than a decade.  Clofarabine  has  received
Orphan Drug designation in the U.S. and the European Union. Genzyme Corporation,
our  co-development  partner,  currently holds marketing  rights in the U.S. and
Canada  for  clofarabine  for  certain  cancer  indications  and  controls  U.S.
development of clofarabine in these indications.  Genzyme is selling clofarabine
under the brand name Clolar in the U.S. In Europe, we have filed for approval of
clofarabine in pediatric ALL and acute  myelogenous  leukemia,  or AML, with the
European  Medicines  Evaluation  Agency,  or EMEA.  The Company  anticipates  an
opinion from the EMEA in Q3 calendar 2005.

We are selling our second product,  Modrenal(R),  in the United Kingdom, through
our sales force of eight sales specialists.  Modrenal(R) is approved in the U.K.
for the treatment of post-menopausal advanced breast cancer following relapse to
initial  hormone  therapy,  and we have  initiated the filing process for mutual
recognition in the E.U. on a country-by-country basis.

If we receive  additional  European  approvals  for our  products,  we intend to
expand our sales  force by adding up to six to 10 sales  specialists  in each of
five other key regions  within the E.U.  which  include the countries of France,
Germany,  Italy, Spain, Portugal,  Netherlands,  Austria,  Belgium,  Denmark and
Sweden.

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

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

We anticipate  that revenues  derived from our two lead drugs,  clofarabine  and
Modrenal(r)  will permit us to further  develop the other products  currently in
our product  pipeline.  In  addition  to  clofarabine  and  Modrenal(r),  we are
performing initial development work on Velostan,  initially for the treatment of
bladder cancer,  and Virostat for the treatment of Hepatitis C. The work to date
on these  compounds  has been  limited  because  of the need to  concentrate  on
clofarabine  and  Modrenal(r)  but  management   believe  these  compounds  have
potential value. With Velostan the Company has been developing a process for the
separation of optical isomers of the compound, and with Virostat the Company has
commenced  a  phase  II  clinical  trial  in  patients  with  hepatitis  C viral
infection.  We  have  had  discussions  with  potential  product  co-development
partners  from time to time,  and plan to continue to explore the  possibilities
for  co-development  and  sub-licensing  in order to implement  our  development
plans. In addition,  we believe that some of our products may have  applications
in treating non-cancer conditions in humans and in animals. Those conditions are
outside  our core  business  focus  and we do not  presently  intend to devote a
substantial  portion of our resources to  addressing  those  conditions.  In May
2003,  we  entered  into  a  License  and  Sub-License   Agreement  with  Dechra
Pharmaceuticals, plc ("Dechra"), pursuant to which we sub-licensed the marketing
and development rights to Vetoryl(r)  trilostane,  solely with respect to animal
health  applications,  in the United States and Canada,  to Dechra.  We received
$1.25 million in cash, together with future milestone and royalty payments which
are contingent upon the occurrence of certain  events.  We intend to continue to
try and capitalize on these types of  opportunities  as they arise.  The Company
also owns  rights  to  OLIGON(r)  technology  and we have had  discussions  with
potential product licensing  partners from time to time, and plan to continue to
explore the  possibilities  for  co-development  and  sub-licensing  in order to
implement our development plans.


                                      -14-



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

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

o    commercialize our existing products;

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

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

o    establish and maintain our client base;

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

o    continue to establish and maintain relationships with manufacturers for our
     products;

o    respond to industry and competitive developments; and

o    attract, retain, and motivate qualified personnel.

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

Results of Operations

The Company recorded revenues for the three months ended March 31, 2005 and 2004
of approximately $1,399,000 and $846,000, respectively, representing an increase
of  approximately  $553,000.  This  amount was  primarily  due to an increase in
license and royalty  revenue due to increased  milestone  payments and royalties
received from certain of our co-development partners, in the amount of $354,000.

For the nine months ended March 31, 2005 and 2004, the Company recorded revenues
of  $3,660,000  and  $1,758,000,   representing  an  increase  of  approximately
$1,902,000.  This  increase  primarily  was due to an  increase  in license  and
royalty revenue from milestone  payments and royalties  received from certain of
our  co-development  partners  in the amount of  approximately  $799,000  and an
increase in research and development  contract revenue due to increased sales in
the Named Patient  Program and increased  clofarabine  research and  development
expenses for which we receive 50% reimbursement from our co-development partner,
in the amount of approximately $739,000.

The cost of  products  sold for the three and nine  months  ended March 31, 2005
were approximately $99,000 and $229,000, respectively. The cost of products sold
reflects the direct costs associated with our sales of Modrenal(R).

Research  and  development  costs for the three  months ended March 31, 2005 and
2004 were approximately $2,137,000 and $994,000,  respectively,  representing an
increase of  approximately  $1,143,000.  Research and development  costs for the
nine  months  ended March 31, 2005 and 2004 were  approximately  $5,986,000  and
$2,545,000, respectively, representing an increase of approximately $3,441,000.


                                      -15-



Our research and development  costs include costs  associated with six projects,
five of which the  Company  currently  devotes  time and  resource.  Clofarabine
research  and  development  costs for the three  months ended March 31, 2005 and
2004 were approximately $1,668,000 and $962,000,  respectively,  representing an
increase of approximately  $706,000.  Clofarabine research and development costs
for the nine months ended March 31, 2005 and 2004 were approximately  $4,661,000
and  $1,612,000,   respectively,   representing  an  increase  of  approximately
$3,049,000.  The increase primarily reflects costs which are associated with our
increased  development  activities  and  clinical  trials of  clofarabine  being
conducted in Europe.

Modrenal(R)  research and development costs for the three months ended March 31,
2005  and  2004  were  approximately   $447,000  and  $(13,000),   respectively,
representing an increase of $460,000. Modrenal(R) research and development costs
for the nine months ended March 31, 2005 and 2004 were approximately  $1,267,000
and $744,000,  respectively,  representing an increase of $523,000. The increase
primarily reflects costs associated with ongoing clinical trials.

Velostan  research  and  development  costs for the three months ended March 31,
2005 and 2004 were approximately $15,000 and $39,000, respectively, representing
a decrease of $24,000.  Velostan  research  and  development  costs for the nine
months ended March 31, 2005 and 2004 were  approximately  $32,000 and  $152,000,
respectively,  representing  a decrease  of  $120,000.  The  decrease  primarily
reflects the Company's primary focus on clofarabine and Modrenal(R) during these
periods.

Virostat  research  and  development  costs for the three months ended March 31,
2005 and 2004 were approximately  $7,000 and $0,  respectively,  representing an
increase of $7,000.  Virostat research and development costs for the nine months
ended  March  31,  2005  and  2004  were  approximately   $13,000  and  $31,000,
respectively,  representing  a  decrease  of  $18,000.  The  decrease  primarily
reflects the Company's primary focus on clofarabine and Modrenal(R) during these
periods.

OLIGON research and development  costs for the three months ended March 31, 2005
and 2004 were approximately $0 and $6,000, respectively, representing a decrease
of $6,000. OLIGON research and development costs for the nine months ended March
31,  2005  and  2004  were  approximately  $13,000  and  $6,000,   respectively,
representing   an  increase  of  $7,000.   The   increase   primarily   reflects
pre-development  costs  incurred in  connection  with  continuing  co-partnering
discussions.

There were no research and  development  costs  associated with Gene Therapy for
the three and nine months  ended  March 31,  2005 and 2004 due to the  Company's
focus on clofarabine and Modrenal(R) during these periods.

The clinical trials and development strategy for the clofarabine and Modrenal(R)
projects,  in each case, is anticipated to cost several million dollars and will
continue for several  years based on the number of clinical  indications  within
which we plan to develop these drugs. Currently,  management cannot estimate the
timing or costs  associated  with these projects  because many of the variables,
such as interaction  with  regulatory  authorities and response rates in various
clinical  trials,  are not  predictable.  Total  costs  to date  for each of our
projects is as follows: (i) clofarabine research and development costs have been
approximately $10,279,000;  (ii) Modrenal(R) research and development costs have
been  approximately  $5,664,000;  (iii) Velostan  research and development costs
have been approximately  $333,000;  (iv) Virostat research and development costs
have been approximately  $71,000; (v) OLIGON research and development costs have
been approximately $23,000; and (vi) Gene Therapy research and development costs
have been approximately $451,000.

Selling,  general and  administrative  expenses for the three months ended March
31, 2005 and 2004 were  approximately  $2,074,000 and $3,722,000,  respectively,
representing a decrease of $1,648,000. Of this amount $2,594,000 is related to a
decrease in costs associated with the variable  accounting  treatment of options
issued to an officer of the  Company,  substantially  offset by an  increase  in
payroll due to the  significant  increase in  headcount in both the New York and
Edinburgh  offices of  $387,000,  an  increase in sales and  marketing  costs of
$308,000  related to the Company's  deployment of a sales and marketing force in
the UK in early  2005,and an increase in royalty  expense of $205,000.  Selling,
general and administrative expenses for the nine months ended March 31, 2005 and
2004 were approximately $6,885,000 and $7,079,000, respectively,  representing a
decrease  of  $194,000.  Of this amount  $3,028,000  is related to a decrease in
costs associated with the variable accounting  treatment of options issued to an
officer of the  Company,  substantially  offset by an increase in payroll due to
the significant increase in headcount in both the New York and Edinburgh offices
of $873,000,  an increase in consulting  fees due to the Company's  expansion of
regulatory and investor  relations  initiatives in the amount of $1,192,000,  an
increase  in sales and  marketing  costs of  $322,000  related to the  Company's
deployment of a sales and  marketing  force in the UK and an increase in royalty
expense of $205,000.

Depreciation and amortization  expense for the three months ended March 31, 2005
and 2004 were approximately


                                      -16-



$347,000  and  $343,000,  respectively,  representing  an  increase  of  $4,000.
Depreciation and  amortization  expense for the nine months ended March 31, 2005
and 2004 were $1,028,000 and $1,023,000, respectively,  representing an increase
of $5,000. This increase primarily reflects the increase in our net asset base.

Liquidity and Capital Resources

We anticipate that we may continue to incur significant operating losses for the
foreseeable  future.  There can be no  assurance  as to  whether or when we will
generate material revenues or achieve profitable operations.

On March 31, 2005, we had cash and cash equivalents of approximately $70,335,000
and  working  capital  of  $68,795,000.  Management  believes  the  Company  has
sufficient cash and cash  equivalents and working capital to continue  currently
planned operations over the next 12 months. Although we do not currently plan to
acquire or obtain licenses for new technologies,  if any such opportunity arises
and we deem it to be in our  interests  to  pursue  such an  opportunity,  it is
possible that additional financing would be required for such a purpose.

On February 8, 2005, we completed a secondary  public  offering in which we sold
7,500,000 common shares at $8.00 per share,  with net proceeds to the Company of
approximately  $55.6  million,   after  deducting   underwriting  discounts  and
commissions and estimated offering  expenses.  We intend to use the net proceeds
for further  development of our lead products,  for sales and marketing expenses
related to the commercial  launch of our lead products,  for working capital and
other general corporate purposes.

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

On May 7, 2002 we authorized the issuance and sale of up to 5,920,000  shares of
Series A Convertible  Preferred Stock. The Series A Convertible  Preferred Stock
may be converted into shares of common stock at an initial  conversion  price of
$1.50 per share of common stock,  subject to adjustment for stock splits,  stock
dividends,  mergers,  issuances of cheap stock and other  similar  transactions.
Holders of Series A Convertible  Preferred  Stock also  received,  in respect of
each  share of  Series A  Convertible  Preferred  Stock  purchased  in a private
placement which took place in May 2002, one warrant to purchase one share of our
common stock at an initial  exercise  price of $2.00 subject to  adjustment.  We
sold an aggregate of 5,916,666 shares of Series A Convertible Preferred Stock in
the May 2002 private  placement  for $3.00 per share and warrants to purchase an
aggregate  of 5,916,666  shares of common  stock,  resulting in aggregate  gross
proceeds of  approximately  $17,750,000.  A portion of the proceeds were used to
repay in full the Jano  Holdings  and SCO  Capital  obligations  upon which such
facilities  were  terminated  as well as to repay fees  amounting to  $1,610,000
related to the transaction.

The Company  received a  nonrefundable  upfront payment of $1.35 million when it
entered  into  the  co-development   agreement  with  Genzyme  and  received  an
additional $3.5 million in December 2003 when it converted  Genzyme's  option to
market clofarabine in the U.S. into a sublicense.  Upon Genzyme's filing the New
Drug  Application for clofarabine  with FDA, the Company  received an additional
(i) $2 million in April 2004 and (ii) $2 million in September  2004. The Company
deferred the upfront payment and recognized revenues ratably, on a straight-line
basis over the related  service period,  through  December 2002. The Company has
deferred  the  milestone  payments  received  to date  and  recognizes  revenues
ratably, on a straight line basis over the related royalty period, through March
2021. For the three months ended March 31, 2005 and 2004, the Company recognized
revenues of approximately $110,000 and $22,000, respectively, in connection with
the  milestone  payments  received to date.  For the nine months ended March 31,
2005 and 2004, the Company recognized  revenues of approximately  $329,000,  and
$51,000,  respectively,  in connection with the milestone  payments  received to
date.

Deferred costs include royalty  payments that became due and payable to SRI upon
the  Company's  execution of the  co-development  agreement  with  Genzyme.  The
Company  defers all  royalty  payments  made to SRI and  recognizes  these costs
ratably,  on a straight-line basis concurrent with revenue that is recognized in
connection  with research and  development  costs  including  approximately  (i)
$55,000  and  $11,000  for the  three  months  ended  March  31,  2005 and 2004,
respectively,  and (ii) $165,000 and $26,000 for the nine months ended March 31,
2005 and 2004, respectively related to such charges.


                                      -17-



The Company  received a  nonrefundable  upfront payment of $1.25 million when it
entered into the License and Sublicense  Agreement  with Dechra  Pharmaceuticals
("Dechra") in May 2003. The Company  deferred the upfront payment and recognizes
revenues  ratably,  on a  straight-line  basis over the related  royalty period,
currently   through   September  2022.  The  Company   recognized   revenues  of
approximately  $15,000 and $29,000 in connection  with the upfront  payment from
Dechra for the three  months  ended March 31, 2005 and 2004,  respectively.  The
Company recognized  revenues of approximately  $72,000 and $87,000 in connection
with the upfront  payment  from Dechra for the nine months  ended March 31, 2005
and 2004, respectively.

Deferred costs include  royalty  payments that became due and payable to Stegram
Pharmaceuticals Ltd. upon the Company's execution of the License and Sub-License
Agreement with Dechra in May 2003. The Company defers all royalty  payments made
to  Stegram  and  recognizes  these  costs  ratably,  on a  straight-line  basis
concurrent  with  revenue  that is  recognized  in  connection  with the  Dechra
agreement.  Research and  Development  costs related to this  agreement  include
approximately  $3,000 and $6,000 for the three  months  ended March 31, 2005 and
2004,  respectively.  Research and  Development  costs related to this agreement
include  approximately  $14,000 and $18,000 for the nine months  ended March 31,
2005 and 2004, respectively.

The Company has the following commitments as of March 31, 2005:




                                            Payments Due in
------------------------------------------------------------------------------------------------------
                                         Total          2005          2006        2007    Thereafter
------------------------------------------------------------------------------------------------------
                                                                             
Employee Contracts                       893,369       274,770        618,599
------------------------------------------------------------------------------------------------------
Occupancy Lease and Automobiles        1,899,102       184,134        598,027    326,401    790,540
------------------------------------------------------------------------------------------------------
Total                                  2,792,471       458,904      1,216,626    326,401    790,540
------------------------------------------------------------------------------------------------------


In October, 2004, the Company executed a Sublease Agreement pursuant to which we
sublease 5,549 square feet of commercial  space at 345 Park Avenue,  41st Floor,
New York, NY 10154, which is the location of the Company's  principal  executive
offices.  Subject to the terms and  conditions  of the Sublease  Agreement,  the
lease expires on December 31, 2009.

Recent Accounting Pronouncements

In December 2004, the Financial  Accounting Standards Board ("FASB") issued SFAS
No.  123R,  "Share  Based  Payment",   requiring  all  share-based  payments  to
employees,  including  grants of employee  stock  options,  to be  recognized as
compensation  expense in the consolidated  financial statements based upon their
fair values. As amended by the SEC on April 14, 2005, this standard is effective
for the quarter beginning July 1, 2005 and includes two transition methods. Upon
adoption,  we  will  be  required  to  use  either  the  modified  retrospective
transition  method or the  modified  prospective  transition  method.  Under the
modified  retrospective  transition method, the previously  reported amounts are
restated for all periods presented to reflect the SFAS 123 amounts in the income
statement.  Under the modified  prospective  transition method,  awards that are
granted,  modified or settled after the date of adoption  should be measured and
accounted for in accordance with SFAS 123R.  Unvested  equity-classified  awards
that were granted  prior to the effective  date should  continue to be accounted
for in  accordance  with SFAS 123 except that amounts must be  recognized in the
income  statement.  We are currently  evaluating the impact of this standard and
its transitional alternatives.

In December  2004, the FASB issued SFAS 153 "Exchange of  Non-monetary  assets".
This statement was a result of a joint effort by the FASB and the  International
Accounting   Standards  Board  ("IASB")  to  improve   financial   reporting  by
eliminating   certain  narrow  differences  between  their  existing  accounting
standards.  One such difference was the exception from fair value measurement in
APB Opinion No. 29, "Accounting for Non-Monetary Transactions", for non-monetary
exchanges of similar productive assets.  SFAS 153 replaces this exception with a
general  exception  from fair value  measurement  for exchanges of  non-monetary
assets  that do not have  commercial  substance.  A  non-monetary  exchange  has
commercial  substance  if the future  cash flows of the entity are  expected  to
change  significantly  as a result of the exchange.  This statement is effective
for non-monetary  assets exchanges  occurring in fiscal periods  beginning after
June 15, 2005.

In November  2004,  the FASB issued SFAS No. 151,  "Inventory  Costs".  SFAS 151
amends  Accounting  Research  Bulletin ("ARB") No. 43, Chapter 4. This statement
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling  costs,  and wasted  material  (spoilage).  SFAS 151 is the result of a
broader  effort  by the FASB  and the IASB to  improve  financial  reporting  by
eliminating   certain  narrow  differences  between  their  existing  accounting
standards.  This  statement is effective for  inventory  costs  incurred  during
fiscal years beginning after June 15, 2005.


                                      -18-



The  adoption  of SFAS 151 is not  expected  to have a  material  impact  on the
results of operations or financial position of the company.

Subsequent Events

On April 4, 2005,  Bioenvision,  Inc. notified Grant Thornton LLP ("GT") of GT's
dismissal  in  connection  with its  decision  to  engage  new  auditors  as its
independent  registered  public  accounting  firm.  On  that  date,  Bioenvision
appointed Deloitte & Touche LLP ("D&T") as its new independent registered public
accounting firm for the fiscal year ending June 30, 2005. The decision to engage
D&T was made by the Audit Committee of Bioenvision's Board of Directors on April
4, 2005. The appointment was effective as of such date.

On May 23, 2005,  management  and the audit  committee of the Company  concluded
that financial  statements  included in its annual report on Form 10-KSB for the
fiscal  year  ended  June 30,  2004,  should  not be relied  upon  because  of a
requirement to correct the Company's tax accounting  related to the  acquisition
of  Pathagon,  Inc.  in  February  2002 which was  identified  during the review
process of the financial  statements  to be included in the Company's  quarterly
report on Form 10-QSB for the quarter  ended March 31,  2005.  Accordingly,  the
Company restated its financial  statements included in its annual report on Form
10-KSB for the year ended June 30, 2004 (the "10-KSB/A"). The Company's 10-KSB/A
was filed on June 29, 2005.

On May 24, 2005, the Company  received a notice from the Nasdaq staff indicating
that  the  Company  is not in  compliance  with  Nasdaq's  requirements  for the
continued  listing  due to its  failure to timely  file its Form  10-QSB for the
period ended March 31, 2005, as required under  Marketplace Rule 4310(c)(14) and
that  therefore  its common stock is subject to delisting  from The Nasdaq Stock
Market.  The notice  does not by itself  result in  immediate  delisting  of the
common stock,  although Nasdaq stated that unless the Company requests a hearing
on Nasdaq's delisting notice, the Company's securities will be delisted from The
Nasdaq Stock Market at the opening of business on June 2, 2005. The Company made
a timely request for a hearing with the Nasdaq Listing  Qualifications  Panel to
review the Nasdaq staff's  determination  which will stay the delisting  pending
the hearing and a determination by the Nasdaq Listing  Qualifications Panel. The
oral hearing is currently scheduled for June 30, 2005.


ITEM 3.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

In connection with its review of the Company's consolidated financial statements
for and as of the three month period ended March 31,  2004,  Grant  Thornton LLP
("Grant Thornton"),  the Company's independent registered public accounting firm
at that time, advised the Audit Committee and management of certain  significant
internal control  deficiencies  that they considered to be, in the aggregate,  a
material weakness, including, inadequate staffing and supervision leading to the
untimely identification and resolution of certain accounting matters; failure to
perform timely reviews,  substantiation and evaluation of certain general ledger
account balances; lack of procedures or expertise needed to prepare all required
disclosures; and evidence that employees lack the qualifications and training to
fulfill their assigned functions.  Grant Thornton indicated that they considered
these  deficiencies  to be a material  weakness  as that term is  defined  under
standards established by the American Institute of Certified Public Accountants.
A material


                                      -19-



weakness is a  significant  deficiency  in one or more of the  internal  control
components  that alone or in the aggregate  precludes our internal  control from
reducing to an appropriately  low level the risk that material  misstatements in
our  financial  statements  will not be prevented or detected on a timely basis.
The Company  considered these matters in connection with the quarter end closing
of accounts and preparation of related quarterly financial  statements at and as
of March 31, 2004 and determined that no prior period financial  statements were
materially affected by such matters.

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

Changes in Internal Controls

In May 2005,  the Company  appointed a Director of  Financial  Reporting  who is
involved with assisting the Controller with the administration of all accounting
functions  including  Sarbanes-Oxley  compliance,  preparation  of all  monthly,
quarterly  and annual  financial  statements  and  further  enhancements  of the
Company's internal controls.  Our Director of Financial  Reporting most recently
served as a Supervising  Senior  Associate in the audit  department of KPMG (New
York office), an internationally recognized public accounting firm. In addition,
in May 2005 the Company also added an Assistant  Accountant  to its UK office to
assist with certain  basic  accounting  and  bookkeeping  responsibilities.  Our
Assistant  Accountant most recently  served as an  Intercompany  Accountant with
Quintiles, an international pharmaceutical company.

Unless otherwise disclosed, we made no other change in our internal control over
financial reporting during the quarter that materially affected or is reasonably
likely to materially affect our internal control over financial reporting.

(a) Restatement.

In connection with the  preparation and filing of this quarterly  report on Form
10-QSB for the three-month  period ended March 31, 2005, our internal  corporate
staff identified errors with respect to our tax accounting  treatment associated
with the  acquisition of Pathagon,  Inc. which was consummated in February 2002.
Our initial accounting concluded that the realization of our deferred tax assets
related to the net operating losses and other deductible  temporary  differences
existing at the acquisition  date, and generated after the acquisition date, did
not meet the "more  likely  than not"  criteria  and,  as a result,  a valuation
allowance was established on the deferred tax assets of the Company. The Company
subsequently  determined that the deferred tax liability  recorded in connection
with the Pathagon  acquisition  creates taxable income as the taxable  temporary
differences  reverse  and,  therefore,  a  portion  of the  valuation  allowance
previously established on our deferred tax assets was not required.

Management  reported  its  findings  to the  Audit  Committee  of the  Board  of
Directors.  After  initial  discussions  with the  Audit  Committee,  management
reviewed these matters in further detail,  and after  completing its analysis on
May 15,  2005,  recommended  to the Audit  Committee  that  previously  reported
financial results be restated to reflect  correction of these errors.  The Audit
Committee agreed with this recommendation. Pursuant to the recommendation of the
Audit  Committee,  the Board of Directors  determined  at its meeting on May 15,
2005,  that  previously  reported  results be restated to correct the income tax
treatment associated with the Pathagon acquisition.

(b) Evaluation of Disclosure Controls and Procedures

In connection with the  restatement,  under the direction of our Chief Executive
Officer and Chief Financial Officer,  we reevaluated our disclosure controls and
procedures.  We  identified  the  following  material  weakness in our  internal
control over  financial  reporting  with respect to accounting  for income taxes
associated with a purchase business combination:

o    a failure  to ensure  the  correct  application  of SFAS 109 in  respect to
     purchase   business   combinations   and  failure  to  correct  that  error
     subsequently  resulting  from  the  lack  of  personnel  knowledge  in  the
     accounting for income taxes.

Solely as a result of this material  weakness,  we concluded that our disclosure
controls and procedures were not effective as of March 31, 2005.

(c)  Remediation of Material Weakness in Internal Control


                                      -20-



As of the date of this  filing  (June 29,  2005),  we have  taken the  following
measures to  remediate  the  material  weakness  in our  internal  control  over
financial  reporting with respect to accounting for income taxes that existed as
of March 31, 2005. The remedial actions include:

o        improving training, education and accounting reviews designed to ensure
         that  all  relevant  personnel  involved  in  income  tax  transactions
         understand and apply accounting in compliance with SFAS 109;

o        hiring additional internal resources, including a Director of Financial
         Reporting,  to perform internal control activities previously completed
         by outside consultants; and

o        engaging an outside tax consult to  supplement  our  internal tax staff
         and enhance our internal controls over income tax accounting.

Additionally, we have tested our internal financial controls with respect to the
corrected  processes for  evaluating  and accounting for the deferred tax assets
and liabilities in the preparation of its financial  statements  affected by the
restatement to ensure compliance with SFAS 109.


                                      -21-



                       BIOENVISION, INC. AND SUBSIDIARIES

                           PART II - OTHER INFORMATION

ITEM 1.  Legal Proceedings

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

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

ITEM 3.  Defaults upon Senior Securities

None

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

None

ITEM 5.  Other information

None.

ITEM 6. Exhibits and Reports on Form 8-K

A) Exhibits

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

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

     32.1 Certification  of  Christopher  B.  Wood  ,  Chief  Executive  Officer
          pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
          of the Sarbanes-Oxley Act of 2002.

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

(B) Reports on Form 8-K:

During the fiscal  quarter ended March 31, 2005, the Company filed the following
Current Report on Form 8-K:

            Current Report on Form 8-K, dated February 2, 2005 as filed with the
Commission on February 3, 2005,  reporting under Item 1.01 Entry into a Material
Definitive   Agreement,   in  connection  with  the  Company  entering  into  an
underwriting  agreement  with  J.P.  Morgan  Securities  and UBS  Securities  as
representatives of several underwriters listed on Schedule I thereto.

            Current Report on Form 8-K, dated February 8, 2005 as filed with the
Commission  on  February  8,  2005,  reporting  under  Item 7.01  Regulation  FD
Disclosure,  in connection  with the  Company's  press  release  announcing  the
closing of its  previously  announced  underwritten  public  offering  of common
stock.


                                      -22-



                                   SIGNATURES

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


Date:  June 29, 2005      By:  /s/ Christopher B. Wood M.D.
                               ----------------------------
                                   Christopher B. Wood M.D.
                                   Chairman and Chief Executive Officer
                                    (Principal Executive Officer)



Date:  June 29, 2005     By:  /s/ David P. Luci
                               ----------------
                                  David P. Luci
                                  Chief Financial Officer and General Counsel
                                  (Principal Financial and Accounting Officer)





                                  EXHIBIT INDEX

Exhibit No.


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


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


32.1 Certification of Christopher B. Wood , Chief Executive  Officer pursuant to
     18  U.S.C.  Section  1350,  as  adopted  pursuant  to  Section  906  of the
     Sarbanes-Oxley Act of 2002.


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