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U.S. Securities and Exchange Commission

Washington, D.C. 20549



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Form 10-QSB



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(Mark One)

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



For the quarterly period ended June 30, 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



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BIOVEST INTERNATIONAL, INC.

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



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



8500 Evergreen Blvd.
NW, Minneapolis, Minnesota 55433

(Address of principal executive offices)



Issuers telephone number: 763-786-0302



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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 August 15, 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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##### Table of Contents

INDEX

BIOVEST INTERNATIONAL, INC.



|                              |  |                                                                    |  |                                                                                                                  |  |     
|----------------------------- |  | ------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                    |  |                                                                                                                  |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                   
|                              |  |                                                                   
|                              |  | ITEM 1. Financial Statements                                       |  |                                                                                                                 
|                              |  |                                                                    | 
|                              |  |                                                                    |  | Condensed Balance Sheet as of June 30, 2004 (unaudited)                                                          |  | 3   
|                              |  |                                                                    | 
|                              |  |                                                                    |  | Condensed Statements of Operations for the Three Months and Nine Months Ended June 30, 2004 and 2003 (unaudited) |  | 4   
|                              |  |                                                                    | 
|                              |  |                                                                    |  | Condensed Statement of Stockholders Deficit for the Nine Months Ended June 30, 2004 (unaudited)                 |  | 5   
|                              |  |                                                                    | 
|                              |  |                                                                    |  | Condensed Statements of Cash Flows for the Nine Months ended June 30, 2004 and 2003 (unaudited)                  |  | 6   
|                              |  |                                                                    | 
|                              |  |                                                                    |  | Notes to Condensed Financial Statements                                                                          |  | 7   
|                              |  |                                                                   
|                              |  | ITEM 2. Managements Discussion and Analysis or Plan of Operations |  | 14                                                                                                              
|                              |  |                                                                   
|                              |  | ITEM 3. Controls and Procedures                                    |  | 18                                                                                                              
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                   
|                              |  |                                                                   
|                              |  | ITEM 1. Legal Proceedings                                          |  | 19                                                                                                              
|                              |  |                                                                   
|                              |  | ITEM 2. Changes in Securities                                      |  | 19                                                                                                              
|                              |  |                                                                   
|                              |  | ITEM 6. Exhibits and Reports on Form 8-K                           |  | 21                                                                                                              
|                              |  |                                                                   
|                              |  | Signatures                                                         |  | 22                                                                                                              



2



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##### Table of Contents

BIOVEST INTERNATIONAL, INC.

CONDENSED BALANCE SHEET



|                                                                                                                                   |  |               |             |   |                   |             |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ----------------- | ----------- | -
|                                                                                                                                   |  | June 30, 2004 |             |   | September 30,2003 |            
|                                                                                                                                   |  | (Unaudited)   |             |   | (Audited)         |            
|ASSETS                                                                                                                             |  |               |             |   |                   |             |  
|Current Assets:                                                                                                                    |  |               |             |   |                   |             |  
|Cash                                                                                                                               |  | $             | 141,000     |   |                   | 538,000     |  
|Accounts receivable, net of $19,000 and $40,000 allowance for doubtful accounts June 30, 2004 and September 30, 2003,
respectively |  |               | 573,000     |   |                   | 980,000     |  
|Costs and estimated earnings in excess of billings on uncompleted contracts                                                        |  |               | 91,000      |   |                   | 24,000      |  
|Inventories                                                                                                                        |  |               | 457,000     |   |                   | 533,000     |  
|Other                                                                                                                              |  |               | 186,000     |   |                   | 291,000     |  
|                                                                                                                                   |  |               |             |   |                   |             |  
|Total current assets                                                                                                               |  |               | 1,448,000   |   |                   | 2,366,000   |  
|                                                                                                                                   |  |              
|Property, plant and equipment, net                                                                                                 |  |               | 1,152,000   |   |                   | 952,000     |  
|Other assets:                                                                                                                      |  |               |             |   |                   |             |  
|Inventories                                                                                                                        |  |               | 235,000     |   |                   | 273,000     |  
|Patents and trademarks, net                                                                                                        |  |               | 545,000     |   |                   | 636,000     |  
|Other intangibles                                                                                                                  |  |               | 2,131,000   |   |                   | 2,131,000   |  
|                                                                                                                                   |  |               |             |   |                   |             |  
|                                                                                                                                   |  | $             | 5,511,000   |   |                   | 6,358,000   |  
|                                                                                                                                   |  |               |             |   |                   |             |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                              |  |               |             |   |                   |             |  
|Current liabilities:                                                                                                               |  |               |             |   |                   |             |  
|Current maturities of long-term debt                                                                                               |  | $             | 434,000     |   |                   | 706,000     |  
|Accounts payable                                                                                                                   |  |               | 894,000     |   |                   | 237,000     |  
|Customer deposits                                                                                                                  |  |               | 19,000      |   |                   | 95,000      |  
|Accrued liabilities:                                                                                                               |  |               |             |   |                   |             |  
|Compensation and related taxes                                                                                                     |  |               | 899,000     |   |                   | 720,000     |  
|Other                                                                                                                              |  |               | 800,000     |   |                   | 667,000     |  
|Billings in excess of costs and estimated earnings on uncompleted contracts                                                        |  |               | 85,000      |   |                   | 180,000     |  
|                                                                                                                                   |  |               |             |   |                   |             |  
|Total current liabilities                                                                                                          |  |               | 3,131,000   |   |                   | 2,605,000   |  
|                                                                                                                                   |  |              
|Long term debt, less current maturities:                                                                                           |  |               |             |   |                   |             |  
|Related party                                                                                                                      |  |               | 1,310,000   |   |                   | 1,310,000   |  
|Non-related party                                                                                                                  |  |               | 3,856,000   |   |                   | 3,718,000   |  
|                                                                                                                                   |  |               |             |   |                   |             |  
|                                                                                                                                   |  |               | 8,297,000   |   |                   | 7,633,000   |  
|Commitments and contingencies                                                                                                      |  |               |             |   |                   |             |  
|Stockholders 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                                                                                                                |  |               | (24,178,000 | ) |                   | (18,168,000 | )
|Unearned stock compensation                                                                                                        |  |               | (11,000     | ) |                   |            |  
|Stock subscription receivable                                                                                                      |  |               | (12,404,000 | ) |                   | (17,150,000 | )
|                                                                                                                                   |  |               |             |   |                   |             |  
|Total stockholders equity                                                                                                         |  |               | (2,786,000  | ) |                   | (1,275,000  | )
|                                                                                                                                   |  |               |             |   |                   |             |  
|                                                                                                                                   |  | $             | 5,511,000   |   |                   | 6,358,000   |  
|                                                                                                                                   |  |               |             |   |                   |             |  



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



3



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BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2004 AND 2003

(unaudited)



|                                      |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------- | - | ---------- | ------------------------------ |  | - | ------------------------------ | - |  | - | ---------- | -
|                                      |  | Three MonthsEnded June 30, 2004 |            |   | Three MonthsEnded June 30, 2003 |   |            | Nine MonthsEnded June 30, 2004 |  |   | Nine MonthsEnded June 30, 2003 |  
|Revenues:                             |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Cell culture products and services    |  | $                               | 373,000    |   |                                 | $ | 112,000    |                                |  | $ | 1,847,000                      |   |  | $ | 1,442,000  |  
|National cell culture center          |  |                                 | 260,000    |   |                                 |   | 416,000    |                                |  |   | 939,000                        |   |  |   | 958,000    |  
|Instrument and disposables            |  |                                 | 717,000    |   |                                 |   | 2,040,000  |                                |  |   | 2,136,000                      |   |  |   | 3,507,000  |  
|R & D services, related party         |  |                                 | 15,000     |   |                                 |   |           |                                |  |   | 120,000                        |   |  |   |           |  
|                                      |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Total revenues                        |  |                                 | 1,365,000  |   |                                 |   | 2,568,000  |                                |  |   | 5,042,000                      |   |  |   | 5,907,000  |  
|                                      |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Operating costs and expenses:         |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Cost of sales                         |  |                                 | 1,283,000  |   |                                 |   | 1,572,000  |                                |  |   | 4,569,000                      |   |  |   | 4,396,000  |  
|Research and development              |  |                                 | 1,395,000  |   |                                 |   | 890,000    |                                |  |   | 3,489,000                      |   |  |   | 1,812,000  |  
|Marketing, general and administrative |  |                                 | 722,000    |   |                                 |   | 2,953,000  |                                |  |   | 2,659,000                      |   |  |   | 4,702,000  |  
|                                      |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Total operating costs and expenses    |  |                                 | 3,400,000  |   |                                 |   | 5,415,000  |                                |  |   | 10,717,000                     |   |  |   | 10,910,000 |  
|                                      |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Loss from operations                  |  |                                 | (2,035,000 | ) |                                 |   | (2,847,000 | )                              |  |   | (5,675,000                     | ) |  |   | (5,003,000 | )
|                                      |  |                                 |            |  
|Other income (expense):               |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Interest expense, net                 |  |                                 | (107,000   | ) |                                 |   | (237,000   | )                              |  |   | (320,000                       | ) |  |   | (536,000   | )
|Financing expense                     |  |                                 |           |   |                                 |   |           |                                |  |   | (15,000                        | ) |  |   | (287,000   | )
|Other income                          |  |                                 |           |   |                                 |   | 25,000     |                                |  |   |                               |   |  |   | 75,000     |  
|Loss on disposal of assets            |  |                                 |           |   |                                 |   |           |                                |  |   |                               |   |  |   | (29,000    | )
|                                      |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Net loss                              |  | $                               | (2,142,000 | ) |                                 | $ | (3,059,000 | )                              |  | $ | (6,010,000                     | ) |  | $ | (5,780,000 | )
|                                      |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Net loss per common share:            |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Basic                                 |  | $                               | (.06       | ) |                                 | $ | (.21       | )                              |  | $ | (.16                           | ) |  | $ | (.50       | )
|                                      |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Diluted                               |  | $                               | (.06       | ) |                                 | $ | (.17       | )                              |  | $ | (.16                           | ) |  | $ | (.44       | )
|                                      |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Weighted average shares outstanding:  |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Basic                                 |  |                                 | 38,160,733 |   |                                 |   | 14,881,478 |                                |  |   | 38,160,733                     |   |  |   | 11,511,377 |  
|                                      |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  
|Diluted                               |  |                                 | 38,160,733 |   |                                 |   | 18,057,835 |                                |  |   | 38,160,733                     |   |  |   | 13,086,892 |  
|                                      |  |                                 |            |   |                                 |   |            |                                |  |   |                                |   |  |   |            |  



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



4



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##### Table of Contents

BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENT & STOCKHOLDERS DEFICIT

FOR THE NINE MONTHS ENDED JUNE 30, 2004

(unaudited)



|                                                              |        |                 |        |              |        |                           |            |  |                     |         |  |                            |            |   |                              |   |             |                            |  |   |         |   |  |   |             |   |  |   |            |  
|------------------------------------------------------------- | ------ | --------------- | ------ | ------------ | ------ | ------------------------- | ---------- |  | ------------------- | ------- |  | -------------------------- | ---------- | - | ---------------------------- | - | ----------- | -------------------------- |  | - | ------- | - |  | - | ----------- | - |  | - | ---------- | -
|                                                              |        | Preferred Stock |        | Common Stock |        | AdditionalPaid In Capital |            |  | Accumulated Deficit |         |  | UnearnedStock Compensation |            |   | 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                              |        |                |        |              |       |                           |           |  |                     |        |  |                            |           |   |                              |   |            |                            |  |   |        |   |  |   | 4,496,000   |   |  |   | 4,496,000  |  
|Settlement of dispute regarding stock subscription receivable |        |                |        |              |       |                           |           |  |                     |        |  |                            | (250,000   | ) |                              |   |            |                            |  |   |        |   |  |   | 250,000     |   |  |   |           |  
|Issuance of stock compensation                                |        |                |        |              |       |                           |           |  |                     |        |  |                            | 14,000     |   |                              |   |            |                            |  |   | (14,000 | ) |  |   |            |   |  |   |           |  
|Amortization of unearned stock compensation                   |        |                |        |              |       |                           |           |  |                     |        |  |                            |           |   |                              |   |            |                            |  |   | 3,000   |   |  |   |            |   |  |   | 3,000      |  
|Net loss                                                      |        |                |        |              |       |                           |           |  |                     |        |  |                            |           |   |                              |   | (6,010,000  | )                          |  |   |        |   |  |   |            |   |  |   | (6,010,000 | )
|                                                              |        |                 |        |              |        |                           |            |  |                     |         |  |                            |            |   |                              |   |             |                            |  |   |         |   |  |   |             |   |  |   |            |  
|Balance                                                       |        | 8,021,886       |        | $            | 80,000 |                           | 38,160,733 |  | $                   | 382,000 |  | $                          | 33,345,000 |   |                              | $ | (24,178,000 | )                          |  | $ | (11,000 | ) |  | $ | (12,404,000 | ) |  | $ | (2,786,000 | )
|                                                              |        |                 |        |              |        |                           |            |  |                     |         |  |                            |            |   |                              |   |             |                            |  |   |         |   |  |   |             |   |  |   |            |  



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



5



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##### Table of Contents

BIOVEST INTERNATIONAL, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JUNE 30, 2004 AND 2003

(unaudited)



|                                                                               |  |                                |            |   |                                |   |            |  
|------------------------------------------------------------------------------ |  | ------------------------------ | ---------- | - | ------------------------------ | - | ---------- | -
|                                                                               |  | Nine MonthsEnded June 30, 2004 |            |   | Nine MonthsEnded June 30, 2003 |  
|Cash flows from operating activities:                                          |  |                                |            |   |                                |   |            |  
|Net loss                                                                       |  | $                              | (6,010,000 | ) |                                | $ | (5,780,000 | )
|Adjustments to reconcile net loss to net cash flows from operating activities: |  |                                |            |   |                                |   |            |  
|Depreciation                                                                   |  |                                | 203,000    |   |                                |   | 180,000    |  
|Amortization                                                                   |  |                                | 91,000     |   |                                |   | 91,000     |  
|Issuance of common stock, options and warrants for services                    |  |                                | 4,000      |   |                                |   | 227,000    |  
|Loss on asset disposal                                                         |  |                                |           |   |                                |   | 29,000     |  
|Amortization of discounts related to debt                                      |  |                                | 40,000     |   |                                |   | 2,124,000  |  
|Changes in cash resulting from changes in:                                     |  |                                |            |   |                                |   |            |  
|Accounts receivable                                                            |  |                                | 406,000    |   |                                |   | (317,000   | )
|Costs and estimated earnings in excess of billings on uncompleted contracts    |  |                                | (68,000    | ) |                                |   | (55,000    | )
|Inventories                                                                    |  |                                | 107,000    |   |                                |   | 181,000    |  
|Other                                                                          |  |                                | 105,000    |   |                                |   | 134,000    |  
|Accounts payable and accrued liabilities                                       |  |                                | 1,182,000  |   |                                |   | (1,174,000 | )
|Customer deposits                                                              |  |                                | (76,000    | ) |                                |   | 204,000    |  
|Billings in excess of costs and estimated earnings on uncompleted contracts    |  |                                | (94,000    | ) |                                |   | 145,000    |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Net cash flows from operating activities                                       |  |                                | (4,110,000 | ) |                                |   | (4,011,000 | )
|                                                                               |  |                                |            |   |                                |   |            |  
|Cash flows from investing activities:                                          |  |                                |            |   |                                |   |            |  
|Purchase of property and equipment                                             |  |                                | (395,000   | ) |                                |   | (32,000    | )
|Proceeds from the disposal of assets                                           |  |                                |           |   |                                |   | 14,000     |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Net cash flows from investing activities                                       |  |                                | (395,000   | ) |                                |   | (18,000    | )
|                                                                               |  |                                |            |   |                                |   |            |  
|Cash flows from financing activities:                                          |  |                                |            |   |                                |   |            |  
|Repayment of short-term borrowings                                             |  |                                | (103,000   | ) |                                |   |           |  
|Repayment of notes payable and long-term debt                                  |  |                                | (285,000   | ) |                                |   | (27,000    | )
|Proceeds from notes payable and long-term debt                                 |  |                                |           |   |                                |   | 2,517,000  |  
|Proceeds from sale of common stock                                             |  |                                |           |   |                                |   | 2,500,000  |  
|Proceeds from stock subscription receivable                                    |  |                                | 4,496,000  |   |                                |   |           |  
|Financing costs paid                                                           |  |                                |           |   |                                |   | (326,000   | )
|                                                                               |  |                                |            |   |                                |   |            |  
|Net cash flows from financing activities                                       |  |                                | 4,108,000  |   |                                |   | 4,664,000  |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Net change in cash                                                             |  |                                | (397,000   | ) |                                |   | 635,000    |  
|Cash at beginning of period                                                    |  |                                | 538,000    |   |                                |   | 494,000    |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Cash at end of period                                                          |  | $                              | 141,000    |   |                                | $ | 1,129,000  |  
|                                                                               |  |                                |            |   |                                |   |            |  
|Supplemental disclosure of cash flow information:                              |  |                                |            |   |                                |   |            |  
|Cash paid for interest during period                                           |  | $                              | 33,000     |   |                                | $ | 20,000     |  
|                                                                               |  |                                |            |   |                                |   |            |  



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



6



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##### Table of Contents

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 nine months ended June 30, 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



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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.



|                                                     |  |               |            |   |               |   |            |  
|---------------------------------------------------- |  | ------------- | ---------- | - | ------------- | - | ---------- | -
|                                                     |  | June 30, 2004 |            |   | June 30, 2003 |  
|Net loss, as reported                                |  | $             | (2,142,000 | ) |               | $ | (3,059,000 | )
|                                                     |  |               |            |   |               |   |            |  
|Stock-based compensation, as reported                |  | $             | 4,000.00   |   |               |   |           |  
|                                                     |  |               |            |   |               |   |            |  
|Stock-based compensation under fair value method     |  | $             | 385,000    |   |               |   | 73,000     |  
|                                                     |  |               |            |   |               |   |            |  
|Pro-forma net loss under fair value method           |  | $             | (2,523,000 | ) |               | $ | (3,132,000 | )
|                                                     |  |               |            |   |               |   |            |  
|Basic net loss per share, as reported                |  | $             | (.06       | ) |               | $ | (0.21      | )
|                                                     |  |               |            |   |               |   |            |  
|Pro-forma net loss per share under fair value method |  | $             | (.07       | ) |               | $ | (0.31      | )
|                                                     |  |               |            |   |               |   |            |  



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BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



2. Significant accounting policies (continued):



Revenue recognition:



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



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.



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) | $2,500,000 was collected through June 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.



The purchaser has agreed to exercise its reasonable efforts to advance funds to us against the stock subscription receivable before the funds are otherwise due under the terms of



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BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



the stock subscription. The advance of stock subscription payments before they become due is
at the discretion of the purchaser which has no commitment to make any advance payment. Additionally, the purchaser has made no representation regarding its ability to make such advance payments. Of the $2,500,000 stock subscription which was due on
June 16, 2004, approximately $2.2 million was received before its due date. Further, $593,000 was received subsequent to June 16, 2004 against the stock subscription due on June 16, 2005. The loans are secured by a general security interest
memorialized in a Line of Credit Promissory Note and a Security Agreement between the purchaser and us.



4. Liquidity and management plans:



During the nine months ended June 30, 2004 the Company incurred a net loss of $6,010,000. At June 30, 2004 the Company had an accumulated deficit of $24,178,000 and working capital deficit of approximately $1,683,000,
and the Company has been meeting its cash requirements through the use of cash on hand, short-term borrowings (primarily from affiliates), the collection of stock subscription receivable, collections of future stock subscription receivables prior to
their due date and by allowing its accounts payable to increase . 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. 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 $7,596,000 in cash and the remaining principal balance of $12,404,000 in promissory notes due in various installments through June 16, 2007. The Company plans to fund its ongoing
operational and development costs through the receipt of stock subscription receivables, including our anticipation of collections of such subscription receivables prior to their anticipated due dates (See Note 3 to the Condensed financial
statements) and through as yet unidentified equity and debt financing transactions. We have no commitment for our required funding. There is no assurance that the required funds can be obtained on terms acceptable or favorable to us, if at all.



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.



On April 27, 2004, the Investigational New Drug Application (IND)
regarding our vaccine was transferred to us from the NCI resulting in the quarterly payment obligation being replaced with a direct obligation for us control vaccine development and to pay the related vaccine development expenses. Our last quarterly
payment to the NCI was made in January, 2004 and we continue to owe approximately $278,000 to the NCI which is past due.



During the nine months ended June 30, 2004, we utilized $395,000 of cash for capital



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BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



expenditures compared with $32,000 for the nine months ended June 30, 2003. The increase in
the current year was primarily attributable to expenditures made to upgrade our Worcester laboratory facility to comply with our plan to produce vaccines for the clinical trial, in combination with the transfer of the IND from the NCI to Biovest in
April 2004.



On August 17, 2004 we agreed to enter into a
Biologic Products Commercialization Agreement with Accentia, Inc which owns eighty one percent of our outstanding stock, whereby Accentia will be our exclusive commercialization partner for all biologics products, including without limitation our
therapeutic Cancer Vaccine for Non-Hodgkins Lymphoma. For so long as Accentia owns fifty one percent or more of our outstanding capital stock we will only be required to reimburse Accentia for direct and indirect expenses. Should Accentia own less
than fifty one percent of our outstanding capital stock, the agreement requires that we pay scheduled compensation for these services.



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 nine months ended June 30, 2004. Three customers accounted for approximately 18%, 12% and 11% of the
Companys trade accounts receivable balance at June 30, 2004. One customer accounted for 28% of revenues for the nine months ended June 30, 2003. The same customer accounted for approximately 74% of the Companys trade accounts receivable
balance at June 30, 2003.



A significant amount of the
Companys revenue has been derived from export sales. The Companys export sales were 36% and 44% for the nine months ended June 30, 2004 and 2003, respectively. For the nine months ended June 30, 2003, one foreign country accounted for
31% of total revenues



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BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



6. Inventories:



Inventories consist of the following:



|                         |  |              |          |  
|------------------------ |  | ------------ | -------- | -
|                         |  | June 30,2004 |         
|Finished goods           |  | $            | 115,000  |  
|Work-in-process          |  |              | 46,000   |  
|Raw materials            |  |              | 531,000  |  
|                         |  |              |          |  
|                         |  |              | 692,000  |  
|Less non-current portion |  |              | (235,000 | )
|                         |  |              |          |  
|                         |  | $            | 457,000  |  
|                         |  |              |          |  



The Company has
inventory quantities in excess of anticipated sales requirements for the twelve months subsequent to June 30, 2004. Accordingly, a portion of the Companys inventory balance ($235,000) is classified as a non-current asset as of that date.



7. Stock-based compensation:



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.



|                                                     |  |               |            |   |               |   |            |  
|---------------------------------------------------- |  | ------------- | ---------- | - | ------------- | - | ---------- | -
|                                                     |  | June 30, 2004 |            |   | June 30, 2003 |  
|Net loss, as reported                                |  | $             | (2,142,000 | ) |               | $ | (3,059,000 | )
|                                                     |  |               |            |   |               |   |            |  
|Stock-based compensation, as reported                |  | $             |            |   |               |   |           |  
|                                                     |  |               |            |   |               |   |            |  
|Stock-based compensation under fair value method     |  | $             | 385,000    |   |               |   | 73,000     |  
|                                                     |  |               |            |   |               |   |            |  
|Pro-forma net loss under fair value method           |  | $             | (2,527,000 | ) |               | $ | (3,132,000 | )
|                                                     |  |               |            |   |               |   |            |  
|Basic net loss per share, as reported                |  | $             | (.06       | ) |               | $ | (0.21      | )
|                                                     |  |               |            |   |               |   |            |  
|Pro-forma net loss per share under fair value method |  | $             | (.07       | ) |               | $ | (0.31      | )
|                                                     |  |               |            |   |               |   |            |  



8. Income taxes:



No provision for income taxes has been recorded for the nine months ended
June 30, 2004 and 2003 due to the losses incurred during the periods. At June 30, 2004, the Company has net operating loss carryforwards of approximately $9,810,000 available to offset future taxable income, which will expire 2022 and 2024. 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 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 $3,728,000 at June 2004 has been offset by a
corresponding $3,728,000 deferred tax asset valuation allowance.



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BIOVEST INTERNATIONAL, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)



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.



We have received notice of a threatened claim from an individual and a company with which he is affiliated, alleging that certain equipment sold in the
past, including by our predecessor company, may have infringed some aspects of patents allegedly held by this individual. We no longer offer the equipment which is the subject of the notice of potential infringement for sale, and do not utilize this
equipment for any aspect of our cancer vaccine development. The amount of equipment described in the notice which we historically sold was not material in amount. Based on input from our special intellectual property legal counsel, we believe that
our products did not and do not infringe these patents, and/or that the alleged patent claims are invalid. We have commenced a Declaratory Judgment action in U.S. District Court for the District of Minnesota, seeking a declaration that there is no
patent infringement and asking for an award of damages against the defendants for tortious interference with our business as a result of their actions in delivering these infringement claims directly to one or more of our customers.



We have received notice that we have been named as a party to litigation
commenced by a stockholder seeking to collect a promissory note in the amount of $100,000. This same stockholder has asserted a claim for approximately $1,000,000 in compensation under an employment agreement. The compensation claim is disputed by
us. The pending action is limited to matters related to the promissory note. We have not filed an answer and we plan to pursue a potential negotiated resolution of the note and potentially the disputed compensation payment which may include payments
pursuant to a schedule. In the absence of a negotiated settlement, we anticipate asserting all available defenses.



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



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ITEM 2. 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.



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.



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BIOVEST INTERNATIONAL, INC.



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 and nine months ended June 30, 2004 of $1,365,000 and $5,042,000 decreased 47% and 15% from $2,568,000 and
$5,907,000 for the three and nine months ended June 30, 2003. Due to increased activity, contract cell culture production services increased 233% and 28% for the three and nine months ended June 30, 2004 to $373,000 and $1,847,000 from $112,000 and
$1,442,000 for the same periods in 2003. National Cell Culture Center sales for the three and nine months ended June 30, 2004 decreased 38% and 2% to $260,000 and $939,000 compared to $416,000 and $958,000 for the same periods in 2003. The decrease
in revenues reflects a non recurring retroactive adjustment made during the 2003 period stemming from higher than anticipated approved indirect cost rates.. Sales of instruments and disposables for the three and nine months ended June 30, 2004
decreased 65% and 39% compared to the same periods in 2003 from $2,040,000 and $3,507,000 to $717,000 and $2,136,000. This reduction is primarily a reflection of a significant multiple systems sale to one customer shipped in stages over the last
half of 2003. Revenues of $15,000 and $120,000 were recorded in the three and nine months ended June 30, 2004 from R&D services provided to an affiliated company.



Gross Margin. The overall gross margin decreased for the third quarter of fiscal year 2004 from 39% to 6% and
for the nine months ended June 30, 2004 from 26% to 9% versus the comparable periods last year. The decreases in margin are primarily the result of decreased activity and increased cost of sales due to the sales mix, as well as the fixed costs ratio
for both years.



Operating Expenses. Research and
development expenses for the three and nine months ended June 30, 2004 increased $505,000 and $1,677,000 versus the comparable periods last year. CRADA expenses for the three and nine months ended June 30, 2004 were approximately $1,308,000 and
$3,180,000, respectively, and are included in Research and Development in our financial statements. These expenses are associated primarily with



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BIOVEST INTERNATIONAL, INC.



vaccine production supporting the on-going clinical trial and design engineering expense associated with designing a more efficient
commercially scaleable prototype bioreactor for vaccine production. Marketing, general and administrative expenses decreased $2,231,000 and $2,043,000 in the three and nine months ended June 30, 2004 versus the same period in fiscal 2003. The
decrease is attributed largely to the 2003 recognition of $1,763,000 of stock compensation expense related to termination packages of former officers and directors. We also decreased marketing and general and administrative expenses, attributable
primarily to decreased 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 nine month periods ended
June 30, 2004 was $107,000 and $320,000 versus $237,000 and $536,000 for the same periods last year. Financing expense for the nine months ended June 30, 2004 was $15,000 and compared to $287,000 for the nine months ended June 30, 2003.



Liquidity and Capital Resources



At June 30, 2004 the Company had an accumulated deficit of $24,178,000 and a working capital
deficit of approximately $1,683,000. During the nine months ended June 30, 2004 we incurred a loss of $6,010,000 and used $4,110,000 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), the collection of stock subscription receivables including collection of such receivables prior to their due date and by allowing its accounts payable to increase. The Company
considers its liquidity and capital resource situation to be critical. The Company expects to fund its cash requirements through a combination of advance collections of its stock subscription receivables (see Note 3 to the Condensed Financial
Statements) which are payable in increments with the next installment scheduled for June 16, 2005, and through as yet unidentified equity and debt financing transactions. We have no commitment for the required funding and we are subject to the risk
that the required funds will not be obtained on terms acceptable or favorable to us, if at all. Our inability to obtain required funds or any substantial delay in obtaining required funds would have an adverse effect on our ability to continue to
conduct our business.



On June 30, 2004 the Company had a
working capital deficit of approximately $1,683,000 compared to a working capital deficit of $239,000 at September 30, 2003.



During the nine months ended June 30, 2004, we utilized $395,000 of cash for capital expenditures compared with $32,000 for the nine months ended June 30,
2003. The increase in the current year was primarily attributable to expenditures made to upgrade our Worcester laboratory facility to comply with our plan to produce vaccines for the clinical trial, in combination with the transfer of the IND from
the NCI to Biovest in April, 2004.



In September 2001 the
Company entered into a definitive Cooperative Research and



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BIOVEST INTERNATIONAL, INC.



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. Until April 27, 2004, 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. On April 27, 2004, the Investigational New Drug Application (IND) regarding our vaccine was transferred to us from the NCI, resulting in the quarterly
payment obligation being replaced with a direct obligation for us to control vaccine development and to pay the related vaccine development expenses. Our last quarterly payment to the NCI was made in January , 2004 and we continue to owe
approximately $278,000 to the NCI which is past due.



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



Fluctuations in Operating Results



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



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BIOVEST INTERNATIONAL, INC.



ITEM 3. CONTROLS AND PROCEDURES



An evaluation
was performed under the supervision and with the participation of our management, including the Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of the design and operation of our disclosure procedures.
Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of June 30, 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.



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BIOVEST INTERNATIONAL, INC.



PART
II. OTHER INFORMATION



ITEM 1. 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.



We have received notice of a threatened claim from
an individual and a company with which he is affiliated, alleging that certain equipment sold in the past, including by our predecessor company, may have infringed some aspects of patents allegedly held by this individual. We no longer offer for
sale the equipment which is the subject of the notice of potential infringement, and do not utilize this equipment for any aspect of our cancer vaccine development. The amount of equipment described in the notice which we historically sold was not
material in amount. Based on input from our special intellectual property legal counsel, we believe that our products did not and do not infringe these patents, and/or that the alleged patent claims are invalid. We have commenced a Declaratory
Judgment action in U.S. District Court for the District of Minnesota, seeking a declaration that there is no patent infringement and asking for an award of damages against the defendants for tortious interference with our business as a result of
their actions in delivering these infringement claims directly to one or more of our customers.



We have received notice that we have been named as a party to litigation commenced by a stockholder seeking to collect a promissory note in the amount of
$100,000. This same stockholder has asserted a claim for approximately $1,000,000 in compensation under an employment agreement. The compensation claim is disputed by us. The pending action is limited to matters related to the promissory note. We
have not filed an answer and we plan to pursue a potential negotiated resolution of the note and potentially the disputed compensation payment which may include payments pursuant to a schedule. In the absence of a negotiated settlement, we
anticipate asserting all available defenses.



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.



ITEM 2. CHANGES IN SECURITIES



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



In
November 2003, the Company granted a stock 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.



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BIOVEST INTERNATIONAL, INC.



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 Stock Option Plan. 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. 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 Stock Option Plan. The
options were granted pursuant to a private transaction exempt under Section 4(2) of the Act.



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ITEM 6. EXHIBITS AND REPORTS



|   |   |  |                      |  |                                                                                  
|-- | - |  | -------------------- |  | ---------------------------------------------------------------------------------
|(a | ) |  | Exhibits            
|   |   | 
|   |   |  | 2.1                  |  | Second Amendment to Investment Agreement                                         
|   |   | 
|   |   |  | 2.2                  |  | Biologic Products Commercialization Agreement                                    
|   |   | 
|   |   |  | 2.3                  |  | Line of Credit Promissory Note                                                   
|   |   | 
|   |   |  | 2.4                  |  | General Security Agreement                                                       
|   |   | 
|   |   |  | 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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##### Table of Contents

BIOVEST INTERNATIONAL, INC.



SIGNATURES



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



|                      |  |                                      
|--------------------- |  | -------------------------------------
|                      |  | BIOVEST INTERNATIONAL, INC.          
|                      |  | (Registrant)                         
|                      | 
|Date: August 23, 2004 |  |                                      
|                      |  | Dr. Stephane Allard                  
|                      |  | President and Chief Executive Officer
|                      | 
|Date: August 23, 2004 |  |                                      
|                      |  | James A. McNulty                     
|                      |  | Chief Financial Officer              



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