---



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 December 31, 2003



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



For the  transition period from  to



Commission file number 0-11480



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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 February 19, 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



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|                                                                                                      |  |     
|----------------------------------------------------------------------------------------------------- |  | ----
|INDEXBIOVEST INTERNATIONAL, INC.                                                                      |  |     
|                                                                                                      |  | Page
|PART I. FINANCIAL INFORMATION                                                                         |  |     
|ITEM 1. Financial Statements                                                                          |  |     
|Condensed Balance Sheet as of December 31, 2003 (unaudited)                                           |  | 3   
|Condensed Statements of Operations for the Three Months ended December 31, 2003 and 2002 (unaudited)  |  | 4   
|Condensed Statement of Stockholders Deficit for the Three Months Ended December 31, 2003 (unaudited) |  | 5   
|Condensed Statements of Cash Flows for the Three Months ended December 31, 2003 And 2002 (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



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BIOVEST INTERNATIONAL, INC.

CONDENSED BALANCE SHEET

DECEMBER 31, 2003

(unaudited)



|                                                                                                     |  |   |             |  
|---------------------------------------------------------------------------------------------------- |  | - | ----------- | -
|                                                                                                     |  |   |            
|ASSETS                                                                                               |  |   |             |  
|Current assets:                                                                                      |  |   |             |  
|Cash                                                                                                 |  | $ | 343,000     |  
|Accounts receivable, net of $47,000 allowance for doubtful accounts                                  |  |   | 913,000     |  
|Costs and estimated earnings in excess of billings on uncompleted contracts                          |  |   | 122,000     |  
|Inventories                                                                                          |  |   | 526,000     |  
|Other                                                                                                |  |   | 273,000     |  
|                                                                                                     |  |   |             |  
|Total current assets                                                                                 |  |   | 2,177,000   |  
|Property, plant and equipment, net                                                                   |  |   | 949,000     |  
|Other assets:                                                                                        |  |   |             |  
|Inventories                                                                                          |  |   | 253,000     |  
|Patents and trademarks, net                                                                          |  |   | 606,000     |  
|Goodwill                                                                                             |  |   | 2,131,000   |  
|                                                                                                     |  |   |             |  
|                                                                                                     |  | $ | 6,116,000   |  
|                                                                                                     |  |   |             |  
|LIABILITIES AND SHAREHOLDERS DEFICIT                                                                |  |   |             |  
|Current liabilities:                                                                                 |  |   |             |  
|Current maturities of long-term debt                                                                 |  | $ | 483,000     |  
|Accounts payable                                                                                     |  |   | 250,000     |  
|Customer deposits                                                                                    |  |   | 31,000      |  
|Accrued liabilities:                                                                                 |  |   |             |  
|Compensation and related taxes                                                                       |  |   | 741,000     |  
|Other                                                                                                |  |   | 657,000     |  
|Billings in excess of costs and estimated earnings on uncompleted contracts                          |  |   | 265,000     |  
|                                                                                                     |  |   |             |  
|Total current liabilities                                                                            |  |   | 2,427,000   |  
|Long Term Debt, less current maturities:                                                             |  |   |             |  
|Related party                                                                                        |  |   | 1,310,000   |  
|Non-related party                                                                                    |  |   | 3,694,000   |  
|                                                                                                     |  |   |             |  
|                                                                                                     |  |   | 7,431,000   |  
|Commitments and contingencies                                                                        |  |   |             |  
|Shareholders deficit:                                                                               |  |   |             |  
|Preferred stock, $.01 par value, 10,000,000 shares authorized; 8,021,886 issued and outstanding      |  |   | 80,000      |  
|Common stock, $.01 par value, 50,000,000 shares authorized; 38,160,733 shares issued and outstanding |  |   | 382,000     |  
|Additional paid-in capital                                                                           |  |   | 33,331,000  |  
|Accumulated deficit                                                                                  |  |   | (20,108,000 | )
|Stock subscription receivable                                                                        |  |   | (15,000,000 | )
|                                                                                                     |  |   |             |  
|Total shareholders equity                                                                           |  |   | ( 1,315,000 | )
|                                                                                                     |  |   |             |  
|                                                                                                     |  | $ | 6,116,000   |  
|                                                                                                     |  |   |             |  



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



3



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BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002

(unaudited)



|                                      |  |                                    |            |   |                                    |   |            |  
|------------------------------------- |  | ---------------------------------- | ---------- | - | ---------------------------------- | - | ---------- | -
|                                      |  | Three MonthsEndedDecember 31, 2003 |            |   | Three MonthsEndedDecember 31, 2002 |  
|Revenues:                             |  |                                    |            |   |                                    |   |            |  
|Cell culture products and services    |  | $                                  | 782,000    |   |                                    | $ | 635,000    |  
|National cell culture center          |  |                                    | 341,000    |   |                                    |   | 270,000    |  
|Instruments and disposables           |  |                                    | 700,000    |   |                                    |   | 639,000    |  
|                                      |  |                                    |            |   |                                    |   |            |  
|Total revenues                        |  |                                    | 1,823,000  |   |                                    |   | 1,544,000  |  
|                                      |  |                                    |            |   |                                    |   |            |  
|Operating costs and expenses:         |  |                                    |            |   |                                    |   |            |  
|Cost of sales                         |  |                                    | 1,762,000  |   |                                    |   | 1,468,000  |  
|Research and development              |  |                                    | 917,000    |   |                                    |   | 426,000    |  
|Marketing, general and administrative |  |                                    | 960,000    |   |                                    |   | 790,000    |  
|                                      |  |                                    |            |   |                                    |   |            |  
|Total operating costs and expenses    |  |                                    | 3,639,000  |   |                                    |   | 2,684,000  |  
|                                      |  |                                    |            |   |                                    |   |            |  
|Loss from operations                  |  |                                    | (1,816,000 | ) |                                    |   | (1,140,000 | )
|Other income (expense):               |  |                                    |            |   |                                    |   |            |  
|Interest expense, net                 |  |                                    | (109,000   | ) |                                    |   | (112,000   | )
|Other income (expense)                |  |                                    | 15,000     |   |                                    |   | 50,000     |  
|                                      |  |                                    |            |   |                                    |   |            |  
|                                      |  |                                    | (124,000   | ) |                                    |   | (62,000    | )
|                                      |  |                                    |            |   |                                    |   |            |  
|Net loss                              |  | $                                  | (1,940,000 | ) |                                    | $ | (1,202,000 | )
|                                      |  |                                    |            |   |                                    |   |            |  
|Net loss per common share:            |  |                                    |            |   |                                    |   |            |  
|Basic                                 |  | $                                  | (.05       | ) |                                    | $ | (.12       | )
|                                      |  |                                    |            |   |                                    |   |            |  
|Diluted                               |  | $                                  | (.05       | ) |                                    | $ | (.12       | )
|                                      |  |                                    |            |   |                                    |   |            |  
|Weighted average shares outstanding:  |  |                                    |            |   |                                    |   |            |  
|Basic                                 |  |                                    | 38,160,733 |   |                                    |   | 9,796,363  |  
|                                      |  |                                    |            |   |                                    |   |            |  
|Diluted                               |  |                                    | 38,160,733 |   |                                    |   | 9,796,363  |  
|                                      |  |                                    |            |   |                                    |   |            |  



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



4



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BIOVEST INTERNATIONAL, INC.

CONDENSED STOCKHOLDERS DEFICIT

FOR THE THREE MONTHS ENDED DECEMBER 31, 2003

(unaudited)



|                                      |  |                 |  |              |        |                           |            |        |                     |         |  |                              |            |   |                            |   |             |   |  |   |             |   |  |   |            |  
|------------------------------------- |  | --------------- |  | ------------ | ------ | ------------------------- | ---------- | ------ | ------------------- | ------- |  | ---------------------------- | ---------- | - | -------------------------- | - | ----------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                      |  | Preferred Stock |  | Common Stock |        | AdditionalPaid In Capital |            |        | Accumulated Deficit |         |  | StockSubscription Receivable |            |   | 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      |  |                |  |              |       |                           |           |        |                     |        |  |                              |           |   |                            |   |            |   |  |   | 1,900,000   |   |  |   | 1,900,000  |  
|Settlement of dispute regarding stock |  |                 |  |              |        |                           |            |        |                     |         |  |                              |            |   |                            |   |             |   |  |   |             |   |  |   |            |  
|subscription receivable               |  |                |  |              |       |                           |           |        |                     |        |  |                              | (250,000   | ) |                            |   |            |   |  |   | 250,000     |   |  |   |           |  
|Net loss                              |  |                |  |              |       |                           |           |        |                     |        |  |                              |           |   |                            |   | (1,940,000  | ) |  |   |             |   |  |   | (1,940,000 | )
|                                      |  |                 |  |              |        |                           |            |        |                     |         |  |                              |            |   |                            |   |             |   |  |   |             |   |  |   |            |  
|Balance at December 31, 2003          |  | 8,021,886       |  | $            | 80,000 |                           | 38,160,733 |        | $                   | 382,000 |  | $                            | 33,331,000 |   |                            | $ | (20,108,000 | ) |  | $ | (15,000,000 | ) |  | $ | (1,315,000 | )
|                                      |  |                 |  |              |        |                           |            |        |                     |         |  |                              |            |   |                            |   |             |   |  |   |             |   |  |   |            |  



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



5



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BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002

(unaudited)



|                                                                               |  |                    |             |   |                    |   |            |  
|------------------------------------------------------------------------------ |  | ------------------ | ----------- | - | ------------------ | - | ---------- | -
|                                                                               |  | Three Months Ended |             |   | Three Months Ended |  
|                                                                               |  | December 31, 2003  |             |   | December 31, 2002  |  
|Cash flows from operating activities:                                          |  |                    |             |   |                    |   |            |  
|Net loss                                                                       |  |                    | $(1,940,000 | ) |                    | $ | (1,202,000 | )
|Adjustments to reconcile net loss to net cash flows from operating activities: |  |                    |             |   |                    |   |            |  
|Depreciation                                                                   |  |                    | 67,000      |   |                    |   | 60,000     |  
|Amortization                                                                   |  |                    | 30,000      |   |                    |   | 30,000     |  
|Amortization of discounts related to debt                                      |  |                    | 15,000      |   |                    |   | 30,000     |  
|Changes in cash resulting from changes in:                                     |  |                    |             |   |                    |   |            |  
|Accounts receivable                                                            |  |                    | 66,000      |   |                    |   | 298,000    |  
|Costs and estimated earnings in excess of billings on uncompleted contracts    |  |                    | (98,000     | ) |                    |   | (23,000    | )
|Inventories                                                                    |  |                    | 27,000      |   |                    |   | 34,000     |  
|Other                                                                          |  |                    | 59,000      |   |                    |   | 41,000     |  
|Accounts payable and accrued liabilities                                       |  |                    | 55,000      |   |                    |   | 209,000    |  
|Customer deposits                                                              |  |                    | ( 64,000    | ) |                    |   | 109,000    |  
|Billings in excess of costs and estimated earnings on uncompleted contracts    |  |                    | 85,000      |   |                    |   | 129,000    |  
|                                                                               |  |                    |             |   |                    |   |            |  
|Net cash flows from operating activities                                       |  |                    | (1,698,000  | ) |                    |   | (285,000   | )
|                                                                               |  |                    |             |   |                    |   |            |  
|Cash flows from investing activities:                                          |  |                    |             |   |                    |   |            |  
|Purchase of property and equipment                                             |  |                    | (64,000     | ) |                    |   |           |  
|                                                                               |  |                    |             |   |                    |   |            |  
|Net cash flows from investing activities                                       |  |                    | (64,000     | ) |                    |   |           |  
|                                                                               |  |                    |             |   |                    |   |            |  
|Cash flows from financing activities:                                          |  |                    |             |   |                    |   |            |  
|Repayment of short-term borrowings                                             |  |                    | (51,000     | ) |                    |   |           |  
|Repayment of notes payable and long-term debt                                  |  |                    | (282,000    | ) |                    |   |           |  
|Proceeds from notes payable and long-term debt                                 |  |                    |            |   |                    |   | 50,000     |  
|Proceeds from stock subscription                                               |  |                    | 1,900,000   |   |                    |   |           |  
|                                                                               |  |                    |             |   |                    |   |            |  
|Net cash flows from financing activities                                       |  |                    | 1,567,000   |   |                    |   | 50,000     |  
|                                                                               |  |                    |             |   |                    |   |            |  
|Net change in cash                                                             |  |                    | (195,000    | ) |                    |   | (235,000   | )
|Cash at beginning of period                                                    |  |                    | 538,000     |   |                    |   | 494,000    |  
|                                                                               |  |                    |             |   |                    |   |            |  
|Cash at end of period                                                          |  | $                  | 343,000     |   |                    | $ | 259,000    |  
|                                                                               |  |                    |             |   |                    |   |            |  
|Supplemental disclosure of cash flow information:                              |  |                    |             |   |                    |   |            |  
|Cash paid for interest during period                                           |  | $                  | 30,000      |   |                    | $ | 13,000     |  
|                                                                               |  |                    |             |   |                    |   |            |  



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



6



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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 months ended December 31, 2003 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



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BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



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



Use of estimates in the preparation of financial statements:



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



Net income (loss) per common share:



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



Stock-based compensation:



The Company follows Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation (SFAS 123), 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.



|                                                     |  |                   |            |   |                   |   |            |  
|---------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|                                                     |  | December 31, 2003 |            |   | December 31, 2002 |  
|Net loss, as reported                                |  | $                 | (1,940,000 | ) |                   | $ | (1,202,000 | )
|                                                     |  |                   |            |   |                   |   |            |  
|Stock-based compensation, as reported                |  | $                 |           |   |                   |   |           |  
|                                                     |  |                   |            |   |                   |   |            |  
|Stock-based compensation under fair value method     |  | $                 | 215,000    |   |                   |   | 31,000     |  
|                                                     |  |                   |            |   |                   |   |            |  
|Pro-forma net loss under fair value method           |  | $                 | (2,155,000 | ) |                   | $ | (1,233,000 | )
|                                                     |  |                   |            |   |                   |   |            |  
|Basic net loss per share, as reported                |  | $                 | ( 0.05     | ) |                   | $ | ( 0.12     | )
|                                                     |  |                   |            |   |                   |   |            |  
|Pro-forma net loss per share under fair value method |  | $                 | ( 0.06     | ) |                   | $ | ( 0.13     | )
|                                                     |  |                   |            |   |                   |   |            |  



8



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BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



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



On June 16, 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 on June 16, 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) | $2,500,000 due on September 16, 2004
| | ----- | ------------------------------------



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



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



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



All of the promissory notes and shares of capital stock issued under this agreement, except 5,491,852 shares of common stock delivered to Accentia, Inc.
at the original closing, were delivered from escrow upon the payment of the promissory note due on September 16, 2003. 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 three months ended December 31, 2003 the Company incurred a net loss of $1,940,000. At December 31, 2003 the Company had an accumulated deficit
of $20,108,000 and working capital deficit of approximately $250,000. The Company has been meeting its cash requirements through the use of cash on hand, short-term borrowings (primarily from affiliates), and through collection of its stock
subscription receivable. 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.; however there can be no assurances that the Company
will be successful in achieving such funding.



As previously
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 therewith, the Company has received $5,000,000 in cash and the remaining principal balance of $15,000,000
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 on-going credit valuations of its customers. Two customers accounted for 12% and 11% of revenues for the three months ended December 31, 2003. The same customers accounted for approximately 17% and 26%, respectively,
of the Companys trade accounts receivable balance at December 31, 2003. Two customers accounted for 12% and 13% of revenues for the three months ended December 31, 2002. The same customers accounted for 26% and 11% of the Companys trade
accounts receivable balance at December 31, 2002.



A
significant amount of the Companys revenue has been derived from export sales. The Companys export sales were 47% and 33% for the three months ended December 31, 2003 and 2002, respectively. For the three months ended December 31, 2003,
customers in two foreign countries each accounted for 13% of total revenues. For the three months ended December 31, 2002, customers in one foreign country accounted for 13% of total revenues.



|6. | Inventories:
|-- | ------------



|                                      |  |                   |          |  
|------------------------------------- |  | ----------------- | -------- | -
|Inventories consist of the following: |  |                   |          |  
|                                      |  |                   |          |  
|                                      |  | December 31, 2003 |         
|                                      |  |                   |          |  
|Finished goods                        |  | $                 | 97,000   |  
|Work-in-process                       |  |                   | 91,000   |  
|Raw materials                         |  |                   | 591,000  |  
|                                      |  |                   |          |  
|                                      |  |                   | 779,000  |  
|Less non-current portion              |  |                   | (253,000 | )
|                                      |  |                   |          |  
|                                      |  | $                 | 526,000  |  
|                                      |  |                   |          |  



The Company has
inventory quantities in excess of anticipated sales requirements for the twelve months subsequent to December 31, 2003. Accordingly, a portion of the Companys inventory balance is classified as a non-current asset as of that date.



|7. | Stock-based compensation:
|-- | -------------------------



During the three months ended December 31, 2003, the Company granted 1,000,000 options and warrants for the purchase of its common shares to two different
employees in connection with employment agreements. The options have an exercise price of $0.50 per share and a five-year term; half vest immediately and the remainder over three years. 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 $0.46 and the exercise price of the grants was $0.50.



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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 December 31, 2003 and 2002 due to the losses incurred during the periods. At
December 31, 2003, the Company has net operating loss carryforwards of approximately $24,000,000 (expiring 2004 to 2023) available to offset future taxable income. Due to various changes in ownership of the Company, a significant portion of the
original $56,000,000 in tax carry-forwards are subject to restrictions with respect to the ability of the Company to use these amounts to offset future taxable income (limited to $1,040,000 per year). Use of the Companys net operating loss
carryfowards may be further limited as a result of future equity transactions. Furthermore, as a result of the change in ownership, approximately $33,000,000 in losses were deemed lost and, as such, the deferred tax asset and valuation allowance
associated therewith offset. As a result the total deferred tax asset of $12,000,000 at December 2003 has been offset by a corresponding $12,000,000 deferred tax asset valuation allowance.



|9. | Legal proceedings:
|-- | ------------------



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.



|10. | Subsequent events:
|--- | ------------------



On January 9, 2004, the Company entered into a settlement agreement with Prospective Stockholder wherein Biovest agreed to pay $15,000 in cash and release
Prospective Stockholder from its obligation to fund a $250,000 stock subscription receivable. As the dispute existed at December 31, 2003, the Company has recorded the settlement effective as of that date.



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



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.



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BIOVEST INTERNATIONAL, INC.



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



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



Information Relating to Forward-Looking Statements



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



Results of Operations



Revenues. Revenues for the three months
ended December 31, 2003 of $1,823,000 increased 18% from $1,544,000 for the three months ended December 31, 2002. Contract cell culture production services for the three months ended December 31, 2003 increased 23% from $635,000 to $782,000. The
increases are primarily due to increased volume. National Cell Culture Center sales for the three months ended December 31, 2003 were also higher than the comparable periods for last year. NCCC sales for the three months ended December 31, 2003
increased 26% from $270,000 to $341,000 as a result of approved increases in indirect rates. Instrument and disposable sales for the three months ended December 31, 2003 increased 10% from $639,000 to $700,000.



Gross Margin. The overall gross margin for
the first quarter of fiscal year 2004 decreased in comparison to the comparable quarter last year from 5% to 3%. The decrease is due to higher indirect overhead costs.



Operating Expenses. Research and development expenses for the three months ended December
31, 2003 increased $491,000 versus the comparable period last year. CRADA expenses for the three months ended December 31, 2003 were approximately $786,000 associated primarily with technology transfer and clinical trial expense and administrator
payments to NCI. These expenses are associated primarily with designing equipment for vaccine production. Last year, these expenses were approximately $169,000 for the three months. Marketing, general and administrative expenses increased $169,000
in the three months ended December 31, 2003 versus the same period in fiscal 2002. The increase is attributed to increases in management sales personnel.



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BIOVEST INTERNATIONAL, INC.



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 month periods ended December 31, 2003 was $109,000 versus $112,000 for the same period last year.



Liquidity and Capital Resources



At December 31, 2003 the Company had an accumulated deficit of $20,108,000 and a working capital deficit of approximately
$250,000. During the three months ended December 31, 2003 we incurred a loss of $1,940,000 and used $1,698,000 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 subscription 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 December 31, 2003 the Company had a working capital deficit of approximately $250,000 compared to a working capital deficit of $239,000 at September
30, 2003.



During the three months ended December 31, 2003, we
utilized $64,000 of cash for capital expenditures. No capital expenditures were made during the three months ended December 31, 2002.



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.



We are seeking to perform additional vaccine production activities associated with the clinical trial that were previously performed by a contract vendor
and the NCI. In anticipation of these expanded activities, we announced in October 2003 that we were seeking additional leased space potentially in Maryland. However, due to unavailability of leased space considered suitable and with a view to
improving the efficiency and cost effectiveness of these additional activities, we are currently integrating these additional activities into our existing facility at Worcester, Mass.



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).



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BIOVEST INTERNATIONAL, INC.



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



Fluctuations in Operating Results



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.



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BIOVEST INTERNATIONAL, INC.



|ITEM 3. | CONTROLS AND PROCEDUR
ES
|------- | ------------------------



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 December 31, 2003. There have been no significant changes in our internal control over financial reporting in the first
quarter of fiscal 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





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BIOVEST INTERNATIONAL, INC.



PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PRO
CEEDINGS
|------- | ------------------



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 I
N 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.





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BIOVEST INTERNATIONAL, INC.



|ITEM 6. | EXHIBIT
S AND REPORTS
|------- | ---------------------



(a)
Exhibits



|      |  |                                                                                  
|----- |  | ---------------------------------------------------------------------------------
|3.2.1 |  | Release of Claim & Settlement Agreement (Warburton)                              
|      | 
|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





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BIOVEST INTERNATIONAL, INC.



SIGNATU
RES



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



.

|      |  |                   |  |  |  |                                                          
|----- |  | ----------------- |  |  |  | ---------------------------------------------------------
|      |  |                   | 
|      |  |                   |  |  |  | BIOVEST INTERNATIONAL, INC                               
|      |  |                   |  |  |  |                                                          
|      |  |                   |  |  |  | (Registrant)                                             
|      |  |                   | 
|Date: |  | February 19, 2004 |  |  |  | /s/    Dr. Stephane Allard                               
|      |  |                   |  |  |  |                                                          
|      |  |                   |  |  |  | Dr. Stephane Allard President and Chief Executive
Officer
|      |  |                   | 
|Date: |  | February 19, 2004 |  |  |  | /s/    James A. McNulty                                  
|      |  |                   |  |  |  |                                                          
|      |  |                   |  |  |  | James A. McNulty Chief Financial
Officer                 



19