---



U.S. Securities and Exchange Commission

Washington, D.C. 20549



---



Form 10-QSB



(Mark One)

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



| | For the quarterly period ended March 31, 2004
| | ---------------------------------------------



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



| | For the transition period from
                                 to
| | ------------------------------------------------------------------



Commission file number 0-11480



---



BIOVEST INTERNATIONAL, INC.

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



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



8500 Evergreen Blvd.
NW, Minneapolis, Minnesota 55433

(Address of principal executive offices)



Issuers telephone number: 763-786-0302



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



At May             , 2004, there were 38,160,733 shares of the registrants Common Stock,
$0.01 par value, issued and outstanding.



Transitional Small
Business Disclosure Format

(check one) Yes ̈No  x



---







---

INDEX

BIOVEST
INTERNATIONAL, INC.



|                                                                                                                 |  |     
|---------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                 |  | Page
|PART I.     FINANCIAL INFORMATION                                                                                |  |     
|                                                                                                                 | 
|ITEM 1. Financial Statements                                                                                     |  |     
|                                                                                                                 | 
|Condensed Balance Sheet as of March 31, 2004 (unaudited)                                                         |  | 3   
|                                                                                                                 | 
|Condensed Statements of Operations for the Three Months and Six Months Ended March 31, 2004 and 2003 (unaudited) |  | 4   
|                                                                                                                 | 
|Condensed Statement of Stockholders Deficit for the Six Months Ended March 31, 2004 (unaudited)                 |  | 5   
|                                                                                                                 | 
|Condensed Statements of Cash Flows for the Six Months ended March 31, 2004 and 2003 (unaudited)                  |  | 6   
|                                                                                                                 | 
|Notes to Condensed Financial Statements                                                                          |  | 7   
|                                                                                                                 | 
|ITEM 2. Managements Discussion and Analysis or Plan of Operations                                               |  | 13  
|                                                                                                                 | 
|ITEM 3. Controls and Procedures                                                                                  |  | 17  
|                                                                                                                 | 
|PART II.  OTHER INFORMATION                                                                                      |  |     
|                                                                                                                 | 
|ITEM 1. Legal Proceedings                                                                                        |  | 18  
|                                                                                                                 | 
|ITEM 2. Changes in Securities                                                                                    |  | 18  
|                                                                                                                 | 
|ITEM 6. Exhibits and Reports on Form 8-K                                                                         |  | 19  
|                                                                                                                 | 
|Signatures                                                                                                       |  | 20  





2



---

BIOVEST INTERNATIONAL, INC.

CONDENSED BALANCE SHEET





|                                                                                                                                     |  |                |             |   |                    |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ----------- | - | ------------------ | - | ----------- | -
|ASSETS                                                                                                                               |  |                |             |   |                    |  
|                                                                                                                                     |  | March 31, 2004 |             |   | September 30, 2003 |  
|                                                                                                                                     |  | (Unaudited)    |             |   | (Audited)          |  
|Current assets:                                                                                                                      |  |                |             |   |                    |   |             |  
|Cash                                                                                                                                 |  | $              | 214,000     |   |                    | $ | 538,000     |  
|Accounts receivable, net of $13,000 and $40,000 allowance for doubtful accounts March 31, 2004 and September 30, 2003,
respectively. |  |                | 686,000     |   |                    |   | 980,000     |  
|Costs and estimated earnings in excess of billings on uncompleted contracts                                                          |  |                | 100,000     |   |                    |   | 24,000      |  
|Inventories                                                                                                                          |  |                | 507,000     |   |                    |   | 533,000     |  
|Other                                                                                                                                |  |                | 245,000     |   |                    |   | 291,000     |  
|                                                                                                                                     |  |                |             |   |                    |   |             |  
|Total current assets                                                                                                                 |  |                | 1,752,000   |   |                    |   | 2,366,000   |  
|                                                                                                                                     |  |               
|Property, plant and equipment, net                                                                                                   |  |                | 903,000     |   |                    |   | 952,000     |  
|Other assets:                                                                                                                        |  |                |             |   |                    |   |             |  
|Inventories                                                                                                                          |  |                | 210,000     |   |                    |   | 273,000     |  
|Patents and trademarks, net                                                                                                          |  |                | 575,000     |   |                    |   | 636,000     |  
|Goodwill                                                                                                                             |  |                | 2,131,000   |   |                    |   | 2,131,000   |  
|                                                                                                                                     |  |                |             |   |                    |   |             |  
|                                                                                                                                     |  | $              | 5,571,000   |   |                    | $ | 6,358,000   |  
|                                                                                                                                     |  |                |             |   |                    |   |             |  
|                                                                                                                                     |  |               
|LIABILITIES AND SHAREHOLDERS DEFICIT                                                                                                |  |                |             |   |                    |   |             |  
|Current liabilities:                                                                                                                 |  |                |             |   |                    |   |             |  
|Current maturities of long-term debt                                                                                                 |  | $              | 429,000     |   |                    | $ | 706,000     |  
|Accounts payable                                                                                                                     |  |                | 611,000     |   |                    |   | 237,000     |  
|Customer deposits                                                                                                                    |  |                | 78,000      |   |                    |   | 95,000      |  
|Accrued liabilities:                                                                                                                 |  |                |             |   |                    |   |             |  
|Compensation and related taxes                                                                                                       |  |                | 732,000     |   |                    |   | 720,000     |  
|Other                                                                                                                                |  |                | 610,000     |   |                    |   | 667,000     |  
|Billings in excess of costs and estimated earnings on uncompleted contracts                                                          |  |                | 97,000      |   |                    |   | 180,000     |  
|                                                                                                                                     |  |                |             |   |                    |   |             |  
|Total current liabilities                                                                                                            |  |                | 2,557,000   |   |                    |   | 2,605,000   |  
|Long-term debt, less current maturities:                                                                                             |  |                |             |   |                    |   |             |  
|Related party                                                                                                                        |  |                | 1,310,000   |   |                    |   | 1,310,000   |  
|Non-related party                                                                                                                    |  |                | 3,772,000   |   |                    |   | 3,718,000   |  
|                                                                                                                                     |  |                |             |   |                    |   |             |  
|                                                                                                                                     |  |                | 7,639,000   |   |                    |   | 7,633,000   |  
|Commitments and contingencies                                                                                                        |  |                |             |   |                    |   |             |  
|Shareholders deficit:                                                                                                               |  |                |             |   |                    |   |             |  
|Preferred stock, $.01 par value, 10,000,000 shares authorized; 8,021,886 issued and outstanding                                      |  |                | 80,000      |   |                    |   | 80,000      |  
|Common stock, $.01 par value, 50,000,000 shares authorized; 38,160,733 shares issued and outstanding                                 |  |                | 382,000     |   |                    |   | 382,000     |  
|Additional paid-in capital                                                                                                           |  |                | 33,345,000  |   |                    |   | 33,581,000  |  
|Accumulated deficit                                                                                                                  |  |                | (22,036,000 | ) |                    |   | (18,168,000 | )
|Unearned stock compensation                                                                                                          |  |                | (13,000     | ) |                    |   |            |  
|Stock subscription receivable                                                                                                        |  |                | (13,826,000 | ) |                    |   | (17,150,000 | )
|                                                                                                                                     |  |                |             |   |                    |   |             |  
|Total shareholders deficit                                                                                                          |  |                | (2,068,000  | ) |                    |   | (1,275,000  | )
|                                                                                                                                     |  |                |             |   |                    |   |             |  
|                                                                                                                                     |  | $              | 5,571,000   |   |                    | $ | 6,358,000   |  
|                                                                                                                                     |  |                |             |   |                    |   |             |  



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





3



---

BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2004 AND 2003

(unaudited)



|                                      |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|------------------------------------- |  | --------------------------------- | ---------- | - | --------------------------------- | - | ---------- | ------------------------------- |  | - | ------------------------------- | - |  | - | ---------- | -
|                                      |  | Three Months Ended March 31, 2004 |            |   | Three Months Ended March 31, 2003 |   |            | Six Months Ended March 31, 2004 |  |   | Six Months Ended March 31, 2003 |  
|Revenues:                             |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|Cell culture products and services    |  | $                                 | 693,000    |   |                                   | $ | 696,000    |                                 |  | $ | 1,475,000                       |   |  | $ | 1,331,000  |  
|National cell culture center          |  |                                   | 337,000    |   |                                   |   | 272,000    |                                 |  |   | 678,000                         |   |  |   | 542,000    |  
|Instruments and disposables           |  |                                   | 719,000    |   |                                   |   | 827,000    |                                 |  |   | 1,419,000                       |   |  |   | 1,466,000  |  
|R & D services, related party         |  |                                   | 105,000    |   |                                   |   |           |                                 |  |   | 105,000                         |   |  |   |           |  
|                                      |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|Total revenues                        |  |                                   | 1,854,000  |   |                                   |   | 1,795,000  |                                 |  |   | 3,677,000                       |   |  |   | 3,339,000  |  
|Operating costs and expenses:         |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|Cost of sales                         |  |                                   | 1,524,000  |   |                                   |   | 1,356,000  |                                 |  |   | 3,286,000                       |   |  |   | 2,824,000  |  
|Research and development              |  |                                   | 1,177,000  |   |                                   |   | 496,000    |                                 |  |   | 2,094,000                       |   |  |   | 922,000    |  
|Marketing, general and administrative |  |                                   | 977,000    |   |                                   |   | 959,000    |                                 |  |   | 1,937,000                       |   |  |   | 1,750,000  |  
|                                      |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|Total operating costs and expenses    |  |                                   | 3,678,000  |   |                                   |   | 2,811,000  |                                 |  |   | 7,317,000                       |   |  |   | 5,496,000  |  
|                                      |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|Loss from operations                  |  |                                   | (1,824,000 | ) |                                   |   | (1,016,000 | )                               |  |   | (3,640,000                      | ) |  |   | (2,157,000 | )
|Other income (expense):               |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|Interest expense, net                 |  |                                   | (104,000   | ) |                                   |   | (187,000   | )                               |  |   | (213,000                        | ) |  |   | (299,000   | )
|Financing expense                     |  |                                   |           |   |                                   |   | (286,000   | )                               |  |   |                                |   |  |   | (286,000   | )
|Other income                          |  |                                   |           |   |                                   |   |           |                                 |  |   | (15,000                         | ) |  |   | 50,000     |  
|Loss on disposal of assets            |  |                                   |           |   |                                   |   | (29,000    | )                               |  |   |                                |   |  |   | (29,000    | )
|                                      |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|                                      |  |                                   | (104,000   | ) |                                   |   | (502,000   | )                               |  |   | (228,000                        | ) |  |   | (564,000   | )
|                                      |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|                                      |  |                                   |            |  
|Net loss                              |  | $                                 | (1,928,000 | ) |                                   | $ | (1,518,000 | )                               |  | $ | (3,868,000                      | ) |  | $ | (2,721,000 | )
|                                      |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|Net loss per common share:            |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|Basic and diluted                     |  |                                   | (.05       | ) |                                   |   | (.15       | )                               |  |   | (.10                            | ) |  |   | (.28       | )
|Weighted average shares outstanding:  |  |                                   |            |   |                                   |   |            |                                 |  |   |                                 |   |  |   |            |  
|Basic and diluted                     |  |                                   | 38,160,733 |   |                                   |   | 9,953,104  |                                 |  |   | 38,160,733                      |   |  |   | 9,883,982  |  



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



4



---

BIOVEST INTERNATIONAL, INC.

CONDENSED STOCKHOLDERS DEFICIT

FOR THE SIX MONTHS ENDED MARCH 31, 2004

(unaudited)



|                                                              |  |                 |  |              |        |                          |            |        |                    |         |  |                           |            |   |                             |   |             |                           |  |   |         |   |  |   |             |   |  |   |            |  
|------------------------------------------------------------- |  | --------------- |  | ------------ | ------ | ------------------------ | ---------- | ------ | ------------------ | ------- |  | ------------------------- | ---------- | - | --------------------------- | - | ----------- | ------------------------- |  | - | ------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                                              |  | Preferred Stock |  | Common Stock |        | AdditionalPaid InCapital |            |        | AccumulatedDeficit |         |  | UnearnedStockCompensation |            |   | StockSubscriptionReceivable |   |             | TotalStockholdersDeficit | 
|                                                              |  | Shares          |  | Amount       |        | Shares                   |            | Amount |                    |         |  |                           |           
|Balance at September 30, 2003                                 |  | 8,021,886       |  | $            | 80,000 |                          | 38,160,733 |        | $                  | 382,000 |  | $                         | 33,581,000 |   |                             | $ | (18,168,000 | )                         |  | $ |        |   |  | $ | (17,150,000 | ) |  | $ | (1,275,000 | )
|Collection on stock subscription                              |  |                |  |              |       |                          |           |        |                    |        |  |                           |           |   |                             |   |            |                           |  |   |        |   |  |   | 3,074,000   |   |  |   | 3,074,000  |  
|Settlement of dispute regarding stock subscription receivable |  |                |  |              |       |                          |           |        |                    |        |  |                           | (250,000   | ) |                             |   |            |                           |  |   |        |   |  |   | 250,000     |   |  |   |           |  
|Issuance of stock compensation                                |  |                |  |              |       |                          |           |        |                    |        |  |                           | 14,000     |   |                             |   |            |                           |  |   | (14,000 | ) |  |   |            |   |  |   |            |  
|Amortization of unearned stock compensation                   |  |                |  |              |       |                          |           |        |                    |        |  |                           |           |   |                             |   |            |                           |  |   | 1,000   |   |  |   |            |   |  |   | 1,000      |  
|Net loss                                                      |  |                |  |              |       |                          |           |        |                    |        |  |                           |           |   |                             |   | (3,868,000  | )                         |  |   |        |   |  |   |            |   |  |   | (3,868,000 | )
|                                                              |  |                 |  |              |        |                          |            |        |                    |         |  |                           |            |   |                             |   |             |                           |  |   |         |   |  |   |             |   |  |   |            |  
|Balance                                                       |  | 8,021,886       |  | $            | 80,000 |                          | 38,160,733 |        | $                  | 382,000 |  | $                         | 33,345,000 |   |                             | $ | (22,036,000 | )                         |  | $ | (13,000 | ) |  | $ | (13,826,000 | ) |  | $ | (2,068,000 | )
|                                                              |  |                 |  |              |        |                          |            |        |                    |         |  |                           |            |   |                             |   |             |                           |  |   |         |   |  |   |             |   |  |   |            |  



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



5



---

BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED MARCH 31, 2004 AND 2003

(unaudited)



|                                                                               |  |                                 |            |   |                                 |    |           |  
|------------------------------------------------------------------------------ |  | ------------------------------- | ---------- | - | ------------------------------- | -- | --------- | -
|                                                                               |  | Six Months Ended March 31, 2004 |            |   | Six Months Ended March 31, 2003 |   
|Cash flows from operating activities:                                          |  |                                 |            |   |                                 |    |           |  
|Net loss                                                                       |  | ($                              | 3,868,000  | ) |                                 | ($ | 2,721,000 | )
|Adjustments to reconcile net loss to net cash flows from operating activities: |  |                                 |            |   |                                 |    |           |  
|Depreciation                                                                   |  |                                 | 135,000    |   |                                 |    | 120,000   |  
|Issuance of common stock, options and warrants for services                    |  |                                 | 1,000      |   |                                 |    | 790,000   |  
|Loss on asset disposal                                                         |  |                                 |           |   |                                 |    | 29,000    |  
|Amortization                                                                   |  |                                 | 61,000     |   |                                 |    | 61,000    |  
|Amortization of discounts related to debt                                      |  |                                 | 28,000     |   |                                 |    | 159,000   |  
|Changes in cash resulting from changes in:                                     |  |                                 |            |   |                                 |    |           |  
|Accounts receivable                                                            |  |                                 | 293,000    |   |                                 |    | 95,000    |  
|Costs and estimated earnings in excess of billings on uncompleted contracts    |  |                                 | (77,000    | ) |                                 |    | (50,000   | )
|Inventories                                                                    |  |                                 | 83,000     |   |                                 |    | 78,000    |  
|Other                                                                          |  |                                 | 38,000     |   |                                 |    | 88,000    |  
|Accounts payable and accrued liabilities                                       |  |                                 | 479,000    |   |                                 |    | 697,000   |  
|Customer deposits                                                              |  |                                 | (17,000    | ) |                                 |    | (18,000   | )
|Billings in excess of costs and estimated earnings on uncompleted contracts    |  |                                 | (83,000    | ) |                                 |    | 58,000    |  
|                                                                               |  |                                 |            |   |                                 |    |           |  
|Net cash flows from operating activities                                       |  |                                 | (2,927,000 | ) |                                 |    | (614,000  | )
|                                                                               |  |                                 |            |   |                                 |    |           |  
|Cash flows from investing activities:                                          |  |                                 |            |   |                                 |    |           |  
|Purchase of property and equipment                                             |  |                                 | (78,000    | ) |                                 |    |          |  
|Proceeds from disposal of assets                                               |  |                                 |           |   |                                 |    | 47,000    |  
|                                                                               |  |                                 |            |   |                                 |    |           |  
|Net cash flows from investing activities                                       |  |                                 | (78,000    | ) |                                 |    | 47,000    |  
|                                                                               |  |                                 |            |   |                                 |    |           |  
|Cash flows from financing activities:                                          |  |                                 |            |   |                                 |    |           |  
|Repayment of short-term borrowings                                             |  |                                 | (103,000   | ) |                                 |    |          |  
|Repayment of notes payable and long-term debt                                  |  |                                 | (290,000   | ) |                                 |    | (191,000  | )
|Proceeds from notes payable and long-term debt                                 |  |                                 |           |   |                                 |    | 710,000   |  
|Proceeds from stock subscription receivable                                    |  |                                 | 3,074,000  |   |                                 |    |          |  
|Financing costs paid                                                           |  |                                 |           |   |                                 |    | (286,000  | )
|                                                                               |  |                                 |            |   |                                 |    |           |  
|                                                                               |  |                                
|Net cash flows from financing activities                                       |  |                                 | 2,681,000  |   |                                 |    | 233,000   |  
|                                                                               |  |                                
|Net change in cash                                                             |  |                                 | (324,000   | ) |                                 |    | (334,000  | )
|Cash at beginning of period                                                    |  |                                 | 538,000    |   |                                 |    | 494,000   |  
|                                                                               |  |                                 |            |   |                                 |    |           |  
|Cash at end of period                                                          |  | $                               | 214,000    |   |                                 | $  | 160,000   |  
|                                                                               |  |                                 |            |   |                                 |    |           |  
|Supplemental disclosure of cash flow information:                              |  |                                 |            |   |                                 |    |           |  
|Cash paid for interest during period                                           |  | $                               | 32,000     |   |                                 | $  | 17,000    |  
|                                                                               |  |                                 |            |   |                                 |    |           |  



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





6



---

BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



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



The Company is a biotechnology company focused on contract production of cell culture products generally used in the research and development stage.
Additionally, we are designated as the National Cell Culture Center by the National Institutes of Health. We also manufacture and sell proprietary instruments and disposables used in the production of cell culture products. Our customers include
pharmaceutical, diagnostic and biotechnology companies, universities and other research institutions. Additionally, we are developing a therapeutic vaccine to potentially treat non-Hodgkins lymphoma pursuant to a Cooperative Research and
Development Agreement with the National Cancer Institute. This personalized vaccine for the most common and fastest-growing form of hematologic cancer is currently in a Phase III FDA-approved pivotal licensing trial.



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



Basis of presentation:



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



Operating results for the three and six months ended March 31, 2004 are not
necessarily indicative of the results that may be expected for the entire fiscal year. For further information, refer to the financial statements and footnotes thereto included in the Companys Annual Report on Form 10-KSB for the fiscal year
ended September 30, 2003.



Fresh-start reporting in 1999
resulted in material changes to the Companys balance sheet, including valuation of assets at fair value in accordance with principles of the purchase method of accounting, valuation of liabilities pursuant to provisions of the Companys
Modified First Amended Plan of Reorganization (Plan) and valuation of equity based on the reorganization value of the ongoing business.



As of the first fiscal quarter of 2003, the Company adopted SFAS 142 under which amortization of goodwill is no longer permitted. Intangible assets such
as goodwill are to be tested for impairment annually and whenever there is an impairment indicator. The Company has not recorded any impairment losses as a result of the new standard.





7



---

BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



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



Use of estimates in the preparation of financial statements:



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures about contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ from those estimates.



Net income (loss) per common share:



Basic net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of outstanding common shares.
Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of outstanding common shares and common share equivalents relating to stock options and warrants, when dilutive.



Stock-based compensation:



The Company follows Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation (SFAS 123), which establishes a fair value based method of accounting for stock-based non-employee compensation plans; however, the Company has elected to account for its employee stock compensation plans
using the intrinsic value method under Accounting Principles Board Opinion No. 25 with pro forma disclosures of net earnings and earnings per share, as if the fair value based method of accounting defined in SFAS 123 had been applied.



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



|                                                     |  |                |           |   |                |    |           |  
|---------------------------------------------------- |  | -------------- | --------- | - | -------------- | -- | --------- | -
|                                                     |  | March 31, 2004 |           |   | March 31, 2003 |   
|Net loss, as reported                                |  | ($             | 1,928,000 | ) |                | ($ | 1,518,000 | )
|                                                     |  |                |           |   |                |    |           |  
|Stock-based compensation, as reported                |  | $              | 1,756     |   |                |    |          |  
|                                                     |  |                |           |   |                |    |           |  
|Stock-based compensation under fair value method     |  | $              | 349,043   |   |                |    | 73,163    |  
|                                                     |  |                |           |   |                |    |           |  
|Pro-forma net loss under fair value method           |  | ($             | 2,275,287 | ) |                | ($ | 1,591,163 | )
|                                                     |  |                |           |   |                |    |           |  
|Basic net loss per share, as reported                |  | ($             | 0.05      | ) |                | ($ | 0.15      | )
|                                                     |  |                |           |   |                |    |           |  
|Pro-forma net loss per share under fair value method |  | ($             | 0.06      | ) |                | ($ | 0.16      | )
|                                                     |  |                |           |   |                |    |           |  



Revenue
recognition:



Instruments and disposables sales are
recognized in the period in which the applicable products are delivered. The Company does not provide its customers with a right of return; however, deposits made by customers must be returned to customers in the event of non-performance by the
Company.



Revenues from contract cell production and R&D
services are recognized using the percentage-of-completion method, measured by the percentage of contract costs incurred to date to estimated total contract costs for each contract. Contract costs include all direct material, subcontract and labor
costs and those indirect costs related to contract performance, such as indirect labor, insurance, supplies and tools. General and administrative costs are charged to operations as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to revenues, costs and profits and are recognized in the period
such revisions are determined.



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



8



---

BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



|3. | Stock subscription receivable:
|-- | ------------------------------



In June, 2003, pursuant to an Investment Agreement (the Agreement), the Company sold 27,891,037 shares of common stock and 8,021,886 shares of
preferred stock (each share of preferred stock is convertible into common stock on a one for two share basis). The purchase price for the shares, which represents 81% of our capital stock, was $20,000,000 in cash and notes, payable as follows:



| | (i) | $2,500,000 was collected in June, 2003 which included an offset for the repayment of a $530,000 loan previously received by the Company from the purchaser;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | $2,500,000 was collected in September and October 2003
| | ---- | ------------------------------------------------------



| | (iii) | $1,174,000 was advanced through March 2004 and $1,326,000 is due on June 16, 2004
| | ----- | ---------------------------------------------------------------------------------



| | (iv) | $2,500,000 due on June 16, 2005
| | ---- | -------------------------------



| | (v) | $5,000,000 due on June 16, 2006
| | --- | -------------------------------



| | (vi) | $5,000,000 due on June 16, 2007
| | ---- | -------------------------------



The purchaser, Accentia, Inc. is a strategic investor. Accentia is a privately-held biopharmaceutical company, which provides commercialization services
for its own portfolio of pharmaceuticals and in partnerships with biotech companies.



|4. | Liquidity and management plans:
|-- | -------------------------------



During the six months ended March 31, 2004, the Company incurred a net loss of $3,868,000. At March 31, 2004, the Company had an accumulated deficit of
$22,036,000 and working capital deficit of approximately $805,000, and the Company has been meeting its cash requirements through the use of cash on hand and short-term borrowings, primarily through advances from its stock subscription receivable.
The Companys auditors issued a going concern opinion on the financial statements for the year ending September 30, 2003 citing significant losses and working capital deficits at that date, which raised substantial doubt about the
Companys ability to continue as a going concern. The Company expects to fund operating deficits in the near term through proceeds received from its stock subscription receivable and additional loans from Accentia, Inc.



As described in Note 3, on June 16, 2003, the Company sold approximately 81%
of its capital stock for $20,000,000 in cash and notes. In connection with that transaction, the Company has received $6,174,000 in cash and the remaining principal balance of $13,826,000 in promissory notes due in various installments through June
16, 2007.



In September 2001, the Company entered into a
definitive Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute (NCI) for the development and ultimate commercialization of patient-specific vaccines for the treatment of
non-Hodgkins lymphoma. Successful development of the vaccine, if approved by the FDA, from Phase III clinical trials through commercialization will commit the Company to several years of significant expenditures before revenues will be
realized, if ever.



9



---

BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



5. Concentrations of credit risk:



The Company grants credit to customers in the normal course of business, but
generally does not require collateral or any other security to support amounts due. Management performs ongoing credit valuations of its customers. No customer accounted for 10% or more of revenues for the six months ended March 31, 2004. One
customer accounted for approximately 12% of the Companys trade accounts receivable balance at March 31, 2004. One customer accounted for 13% of revenues for the six months ended March 31, 2003.



A significant amount of the Companys revenue has been derived from
export sales. The Companys export sales were 38% and 22% for the six months ended March 31, 2004 and 2003, respectively.



6. Inventories:



Inventories consist of the following:



|                         |  |                |          |  
|------------------------ |  | -------------- | -------- | -
|                         |  | March 31, 2004 |         
|Finished goods           |  | $              | 74,000   |  
|Work-in-process          |  |                | 84,000   |  
|Raw materials            |  |                | 559,000  |  
|                         |  |                |          |  
|                         |  |                | 717,000  |  
|Less non-current portion |  |                | (210,000 | )
|                         |  |                |          |  
|                         |  | $              | 507,000  |  
|                         |  |                |          |  



The Company has
inventory quantities in excess of anticipated sales requirements for the twelve months subsequent to March 31, 2004. Accordingly, a portion of the Companys inventory balance ($210,000) is classified as a non-current asset as of that date.



7. Stock-based compensation:



During the three months ended March 31, 2004, the Company granted 400,000
options for the purchase of its common shares to a director and 100,000 options to a non employee in connection with employment agreements with the parent company. The options have an exercise price of $0.50 per share. The directors options
vest as follows: 100,000 immediately; 100,000 at the first anniversary; and 200,000 at the second anniversary. The non employees options vest equally over two years at each anniversary. All options are exercisable in accordance with the
Companys 2000 Stock Option Plan.



The Company used the
Black-Scholes option-pricing model and the following assumptions to determine the fair value of each option expense related to employee stock options for the purpose of the pro forma presentation in Note 2: zero dividend yield; expected volatility
of 78.97%; expected lives of 5 years; and a risk-free interest rate of 2.56%. The share price on the date of grant was $0.27 and the exercise price of the grants was $0.50.



10



---

BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



8. Income taxes:



No provision for income taxes has been recorded for the three months ended March 31, 2004 and 2003 due to the losses
incurred during the periods. At March 31, 2004, the Company has net operating loss carryforwards of approximately $7,600,000 available to offset future taxable income, which expire 2022 through 2024. Due to various changes in ownership of the
Company, a significant portion of the original $56,000,000 in tax carry-forwards were subject to restrictions with respect to the ability of the Company to use these amounts to offset future taxable income and as a result of these restrictions made
an election to waive all but $3,800,000 of the NOLs to eliminate future basis reductions in the BioVest stock. As a result, the total deferred tax asset of $2,900,000 at March 2004 has been offset by a corresponding $2,900,000 deferred tax
asset valuation allowance.



9. Legal proceedings:



On January 9, 2004, the Company entered into a settlement agreement with a
then prospective shareholder wherein BioVest agreed to pay $15,000 in cash and released the prospective shareholder from an obligation to fund a $250,000 stock subscription receivable.



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





11



---

BIOVEST INTERNATIONAL, INC.



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



Overview



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



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



Critical Accounting Policies and Estimates



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



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



Revenues from contract cell production services are recognized using the percentage-of-completion method, measured by the percentage of contract costs
incurred to date to estimate total contract costs for each contract. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change in the near term.



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



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



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



12



---

BIOVEST INTERNATIONAL, INC.



Information Relating to Forward-Looking Statements



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



Results of Operations



Revenues. Revenues for the three and six months ended March 31, 2004 of $1,854,000 and $3,677,000 increased 3% and 10% from $1,795,000 and $3,339,000 for the three and six months ended March 31, 2003. Contract cell culture
production services decreased negligibly for the three months ended March 31, 2004 to $693,000 from $696,000 for the same period in 2003, and increased 11% for the six months ended March 31, 2004 to $1,475,000 from $1,331,000 for the same period in
2003. The increase is primarily due to increased sales activities and new projects. National Cell Culture Center sales for the three and six months ended March 31, 2004 increased 24% and 25% from $272,000 and $542,000 in 2003 to $337,000 and
$678,000 in 2004 as a result of approved increases in indirect rates. Sales of instruments and disposables for the three and six months ended March 31, 2004 decreased 13% and 3% to $719,000 and $1,419,000 compared to $827,000 and $1,466,000 for the
same periods in 2003. Revenues of $105,000 were recorded in the three and six months ended March 31, 2004 for R&D services provided to an affiliated company.



Gross Margin. The overall gross margin decreased for the second quarter of fiscal year 2004 from 24% to 18%
and for the six months ended March 31, 2004 from 15% to 11% versus the comparable periods last year. The decreases in margin are primarily the result of increased cost of sales due to the sales mix.



Operating Expenses. Research and development expenses for the
three and six months ended March 31, 2004 increased $681,000 and $1,172,000 versus the comparable periods last year. CRADA expenses for the three and six months ended March 31, 2004 were approximately $1,086,000 and $1,872,000, respectively. These
expenses are associated primarily with vaccine production supporting the on-going clinical trial and design engineering expense associated with designing a more efficient bioreactor for vaccine production. Marketing, general and administrative
expenses increased $18,000 and $187,000 in the three and six months ended March 31, 2004 versus the same period in fiscal 2003. The increase is attributed largely to increases in management sales personnel and corporate expenses.



Other Expense.Interest expense, net consists of
interest expense on the Companys long-term and short-term loans from affiliates. Interest expense for the three and six month periods ended March 31, 2004 was $104,000 and $213,000 versus $187,000 and $299,000 for the same periods last year.
Financing expense was $286,000 for the three and six months ended March 31, 2003, with no comparable expense in 2004.





13



---

BIOVEST INTERNATIONAL, INC.



Liquidity and Capital Resources



At March 31, 2004, the Company had an accumulated deficit of $22,036,000 and a working capital deficit of approximately $805,000. During the six months
ended March 31, 2004, we incurred a loss of $3,868,000 and used $2,927,000 of cash flow for operations. Additionally, we have incurred significant losses and cash flow deficits in previous years. During fiscal year 2003 and 2002, we incurred losses
of $6,055,000 and $4,200,000. During fiscal year 2003 and 2002, we used $3,205,000 and $297,000 of cash flow for operations. The Company has been meeting its cash requirements through the use of cash on hand, short-term borrowings (primarily from
affiliates), and through the collection of stock subscriptions receivable. The Company expects to fund operating deficits in the near term through collection of its stock subscription receivable and additional loans, if needed, from Accentia, Inc.;
however, there can be no assurances that the Company will be successful in that regard.



On March 31, 2004, the Company had a working capital deficit of approximately $805,000 compared to a working capital deficit of $239,000 at September 30, 2003.



During the six months ended March 31, 2004, we utilized $78,000 of cash for
capital expenditures. No capital expenditures were made during the six months ended March 31, 2003.



In September 2001, the Company successfully entered into a definitive Cooperative Research and Development Agreement (CRADA) with the National
Cancer Institute (NCI) for the development and ultimate commercialization of patient-specific vaccines for the treatment of non-Hodgkins low-grade follicular lymphoma. The terms of the CRADA included, among other things, a
requirement for us to pay $530,000 quarterly to NCI for expenses incurred in connection with the ongoing Phase III clinical trials



In April 2004, the Investigational New Drug Application (IND) previously issued to the NCI was transferred to us. In connection therewith, we
are currently performing substantially all of the production of the vaccine for use in connection with the ongoing clinical trail. Historically, the vaccine production was divided by the CRADA between the NCI and us with third party contractors
performing significant functions. The greater use of our existing facilities for the production of the vaccine for use in the ongoing clinical trial is anticipated to significantly reduce future quarterly payments to the NCI but will increase our
direct vaccine production expenses. While we considered the necessity of leasing an additional facility to house this vaccine production activity, we are now integrating this activity into our current facilities. We believe that utilizing our
previously underutilized space, equipment and human resource assets together with additional personnel and equipment as required will be efficient and may potentially reduce the direct costs of vaccine production in connection with the ongoing
clinical trials.



Continued development activities related to
this vaccine, including the Phase III clinical trials, are expected to result in substantial expenditures over the next several years before any revenues from this product development materialize. Assuming FDA approval of the vaccine, we plan to
make significant investment in production capacity as part of commercialization. The Company plans to fund its ongoing operational and development costs through equity and debt financing transactions, including anticipated receipt of its
subscription receivables (See Note 3 to the Condensed financial statements).



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



14



---

BIOVEST INTERNATIONAL, INC.



Fluctuations in Operating Results



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



|ITEM 3. | CONTROLS AND PROCEDURES
|------- | -----------------------



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





15



---

BIOVEST INTERNATIONAL, INC.



PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



The
Company may, from time to time, be involved in actual or potential legal proceedings that the Company considers to be in the normal course of business. The Company does not believe that any of these proceedings will have a material adverse effect on
its business.



ITEM 2. CHANGES IN SECURITIES



During the period
of this Report, the Company granted the following options:



In
November 2003, the Company granted an option to the Companys in-house legal general counsel. The option has the following terms: 500,000 shares at an exercise price of $0.50 per share, exercisable in accordance with the Companys 2000
Stock Option Plan; one half vested immediately with the balance to vest over three years. The option was granted pursuant to a private transaction exempt under Section 4(2) of the Act.



In November 2003, the Company granted options to the Companys Chief Financial Officer. These options have the
following terms: 500,000 shares at an exercise price of $0.50 per share, exercisable in accordance with the Companys 2000 Stock Option Plan; one half vested immediately with the balance to vest over three years. The options were granted
pursuant to a private transaction exempt under Section 4(2) of the Act.



In January 2004, the Company granted options to a non-employee director. These options have the following terms: 400,000 shares at an exercise price of $.50; 100,000 shares vest immediately; 100,000 on the first anniversary of the grant and
200,000 on the second anniversary. Exercisable in accordance with the Companys 2000 option plan.



In January 2004, the Company granted options to a non-employee. These options have the following terms: 100,000 shares at an exercise price of $.50;
50,000 vests on the first anniversary of the grant and 50,000 vests on the second anniversary. Exercisable in accordance with the Companys 2000 option plan.





16



---

BIOVEST INTERNATIONAL, INC.



ITEM 6. EXHIBITS AND REPORTS



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



2.1         IND Transfer Letter Dated April 27, 2004

31.1         Certification by Chief Executive Officer pursuant to SarbanesOxley Section 302.

31.2         Certification by Chief Financial Officer pursuant to SarbanesOxley Section 302.

32.1         Certification by Chief Executive Officer pursuant to 18 U.S. C. Section 1350

32.2         Certification by Chief Financial Officer pursuant to 18 U.S. C. Section 1350





(b) Reports on Form 8-K.



There were no reports on Form 8-K filed during this reporting period





17



---

BIOVEST INTERNATIONAL, INC.



SIGNATURES



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



|                    |  |                                                                                                                            
|------------------- |  | ---------------------------------------------------------------------------------------------------------------------------
|Date:  May 24, 2004 |  | BIOVEST INTERNATIONAL, INC. (Registrant)   /s/ Dr. Stephane AllardDr. Stephane Allard President and Chief Executive
Officer





|                    |  |                                                             
|------------------- |  | ------------------------------------------------------------
|Date:  May 24, 2004 |  | /s/ James A. McNultyJames A. McNulty Chief Financial Officer













18