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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the quarterly period ended March 31, 2011

OR



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

For the transition period from
                     to                     .

Commission file number 0-11480





BIOVEST INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)







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

324 S. Hyde Park Ave, Suite
350, Tampa, FL 33606

(Address of principal executive offices) (Zip Code)

(813) 864-2554

(Registrants telephone number, including area code)





Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).    Yes   ̈    No  x

Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a Bankruptcy Plan confirmed by
the Bankruptcy Court.    Yes  x    No   ̈

As of April 30, 2011, there were 141,895,364 shares of the registrants Common Stock outstanding.









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Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q not strictly historical in nature are forward-looking statements. These statements may include, but are not limited to, statements about: the timing of the
commencement, enrollment, and completion of our clinical trials for our product candidates; the progress or success of our product development programs; the status of regulatory approvals for our product candidates; the timing of product launches;
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; and our estimates for future performance, anticipated operating losses, future revenues, capital
requirements, and our needs for additional financing. In some cases, you can identify forward-looking statements by terms such as anticipates, believes, could, estimates, expects,
intends, may, plans, potential, predicts, projects, should, will, would, goal, or other variations of these terms (including
their use in the negative) or by discussions of strategies, plans or intentions. These statements are only predictions based on current information and expectations and involve a number of risks and uncertainties. The underlying information and
expectations are likely to change over time. Actual events or results may differ materially from those projected in the forward-looking statements due to various factors, including, but not limited to, those set forth in ITEM 1A. RISK
FACTORS of our Annual Report on Form 10-K for the fiscal year ended September 30, 2010 and those set forth in our other filings with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



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INDEX

BIOVEST INTERNATIONAL, INC.



|                              |  |                                                                                                                        |  |      |    | 
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                              |  |                                                                                                                        |  | Page |   
|PART I. FINANCIAL INFORMATION |  |                                                                                                                        |  |     
|ITEM 1.                       |  | Financial Statements                                                                                                   |  |      | 4  | 
|                              |  | Condensed Consolidated Balance Sheets as of March 31, 2011 (unaudited) and September 30, 2010                          |  |      | 4  | 
|                              |  | Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2011 and 2010 (unaudited) |  |      | 5  | 
|                              |  | Condensed Consolidated Statement of Stockholders Deficit for the Six Months Ended March 31, 2011 (unaudited)          |  |      | 6  | 
|                              |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2011 and 2010 (unaudited)           |  |      | 7  | 
|                              |  | Notes to Condensed Consolidated Financial Statements                                                                   |  |      | 8  | 
|ITEM 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                  |  |      | 28 | 
|ITEM 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                             |  |      | 37 | 
|ITEM 4.                       |  | Controls and Procedures                                                                                                |  |      | 37 | 
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                        |  |     
|ITEM 1.                       |  | Legal Proceedings                                                                                                      |  |      | 37 | 
|ITEM 1A.                      |  | Risk Factors                                                                                                           |  |      | 38 | 
|ITEM 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                            |  |      | 38 | 
|ITEM 3.                       |  | Defaults Upon Senior Securities                                                                                        |  |      | 38 | 
|ITEM 4.                       |  | (Removed and Reserved)                                                                                                 |  |      | 38 | 
|ITEM 5.                       |  | Other Information                                                                                                      |  |      | 38 | 
|ITEM 6.                       |  | Exhibits                                                                                                               |  |      | 39 | 
|Signatures                    |  |                                                                                                                        |  |      | 40 | 



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PART I. FINANCIAL INFORMATION

ITEM 
1. FINANCIAL STATEMENTS

BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                        |  |                            |              |   |                    |   |              |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------------ | - | ------------------ | - | ------------ | -
|                                                                                                                                                        |  | March 31, 2011 (Unaudited) |              |   | September 30, 2010 |  
|ASSETS                                                                                                                                                  |  |                            |              |   |                    |   |              |  
|Current assets:                                                                                                                                         |  |                            |              |   |                    |   |              |  
|Cash                                                                                                                                                    |  | $                          | 2,310,000    |   |                    | $ | 206,000      |  
|Accounts receivable, net of $8,000 allowance for doubtful accounts at March 31, 2011 and September 30,
2010                                             |  |                            | 365,000      |   |                    |   | 398,000      |  
|Costs and estimated earnings in excess of billings on uncompleted contracts                                                                             |  |                            | 231,000      |   |                    |   | 106,000      |  
|Inventories                                                                                                                                             |  |                            | 432,000      |   |                    |   | 417,000      |  
|Prepaid expenses and other current assets                                                                                                               |  |                            | 552,000      |   |                    |   | 140,000      |  
|                                                                                                                                                        |  |                            |              |   |                    |   |              |  
|                                                                                                                                                        |  |                           
|Total current assets                                                                                                                                    |  |                            | 3,890,000    |   |                    |   | 1,267,000    |  
|                                                                                                                                                        |  |                           
|Property and equipment, net                                                                                                                             |  |                            | 171,000      |   |                    |   | 77,000       |  
|Patents and trademarks, net                                                                                                                             |  |                            | 246,000      |   |                    |   | 261,000      |  
|Reorganization value in excess of amounts allocated to identifiable assets                                                                              |  |                            | 2,131,000    |   |                    |   | 2,131,000    |  
|Other assets                                                                                                                                            |  |                            | 835,000      |   |                    |   | 153,000      |  
|                                                                                                                                                        |  |                            |              |   |                    |   |              |  
|                                                                                                                                                        |  |                           
|Total assets                                                                                                                                            |  | $                          | 7,273,000    |   |                    | $ | 3,889,000    |  
|                                                                                                                                                        |  |                            |              |   |                    |   |              |  
|                                                                                                                                                        |  |                           
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                   |  |                            |              |   |                    |   |              |  
|Liabilities not subject to compromise:                                                                                                                  |  |                            |              |   |                    |   |              |  
|Current liabilities:                                                                                                                                    |  |                            |              |   |                    |   |              |  
|Accounts payable                                                                                                                                        |  | $                          | 333,000      |   |                    | $ | 556,000      |  
|Customer deposits                                                                                                                                       |  |                            | 103,000      |   |                    |   | 85,000       |  
|Accrued liabilities                                                                                                                                     |  |                            | 152,000      |   |                    |   | 689,000      |  
|Notes payable, related party                                                                                                                            |  |                            |             |   |                    |   | 2,597,000    |  
|Current maturities of long term debt                                                                                                                    |  |                            | 1,013,000    |   |                    |   |             |  
|                                                                                                                                                        |  |                            |              |   |                    |   |              |  
|                                                                                                                                                        |  |                           
|Total current liabilities                                                                                                                               |  |                            | 1,601,000    |   |                    |   | 3,927,000    |  
|                                                                                                                                                        |  |                           
|Long term debt, less current maturities                                                                                                                 |  |                            | 30,904,000   |   |                    |   |             |  
|Long term debt, related party                                                                                                                           |  |                            | 253,000      |   |                    |   |             |  
|Interest payable                                                                                                                                        |  |                            | 1,116,000    |   |                    |   |             |  
|Derivative liabilities                                                                                                                                  |  |                            | 3,425,000    |   |                    |   |             |  
|                                                                                                                                                        |  |                            |              |   |                    |   |              |  
|                                                                                                                                                        |  |                           
|Total liabilities not subject to compromise                                                                                                             |  |                            | 37,299,000   |   |                    |   | 3,927,000    |  
|                                                                                                                                                        |  |                           
|Liabilities subject to compromise (Note 10)                                                                                                             |  |                            | 1,190,000    |   |                    |   | 76,898,000   |  
|                                                                                                                                                        |  |                            |              |   |                    |   |              |  
|                                                                                                                                                        |  |                           
|Total liabilities                                                                                                                                       |  |                            | 38,489,000   |   |                    |   | 80,825,000   |  
|                                                                                                                                                        |  |                           
|Commitments and contingencies (Note 13)                                                                                                                 |  |                            |              |   |                    |   |              |  
|                                                                                                                                                        |  |                           
|Stockholders deficit:                                                                                                                                  |  |                            |              |   |                    |   |              |  
|Preferred stock, $.01 par value, 50,000,000 shares authorized; no shares issued and outstanding                                                         |  |                            |             |   |                    |   |             |  
|Common stock, $.01 par value, 300,000,000 shares authorized; 141,874,120 and 98,149,783 issued and outstanding at March 31,
2011 and September 30, 2010 |  |                            | 1,419,000    |   |                    |   | 981,000      |  
|Additional paid-in capital                                                                                                                              |  |                            | 124,814,000  |   |                    |   | 67,934,000   |  
|Accumulated deficit                                                                                                                                     |  |                            | (157,449,000 | ) |                    |   | (149,416,000 | )
|                                                                                                                                                        |  |                            |              |   |                    |   |              |  
|                                                                                                                                                        |  |                           
|Total stockholders deficit attributable to Biovest International, Inc.                                                                                 |  |                            | (31,216,000  | ) |                    |   | (80,501,000  | )
|                                                                                                                                                        |  |                           
|Non-controlling interests                                                                                                                               |  |                            |             |   |                    |   | 3,565,000    |  
|                                                                                                                                                        |  |                            |              |   |                    |   |              |  
|                                                                                                                                                        |  |                           
|Total stockholders deficit                                                                                                                             |  |                            | (31,216,000  | ) |                    |   | (76,936,000  | )
|                                                                                                                                                        |  |                            |              |   |                    |   |              |  
|                                                                                                                                                        |  |                           
|Total liabilities and stockholders deficit                                                                                                             |  | $                          | 7,273,000    |   |                    | $ | 3,889,000    |  
|                                                                                                                                                        |  |                            |              |   |                    |   |              |  

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



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                                                                               |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | ----------- | - | ------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                                                               |  | Three Months EndedMarch 31, |             |   | Six Months EndedMarch 31, |  
|                                                                                                                               |  | 2011                        |             |   | 2010                      |   |             | 2011 |  |   | 2010        |  
|Revenue:                                                                                                                       |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Products                                                                                                                       |  | $                           | 844,000     |   |                           | $ | 1,041,000   |      |  | $ | 1,151,000   |   |  | $ | 1,957,000   |  
|Services                                                                                                                       |  |                             | 377,000     |   |                           |   | 200,000     |      |  |   | 662,000     |   |  |   | 721,000     |  
|Qualified Therapeutic Discovery Project Grant                                                                                  |  |                             |            |   |                           |   |            |      |  |   | 244,000     |   |  |   |            |  
|                                                                                                                               |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|                                                                                                                               |  |                             |             |  
|Total revenue                                                                                                                  |  |                             | 1,221,000   |   |                           |   | 1,241,000   |      |  |   | 2,057,000   |   |  |   | 2,678,000   |  
|                                                                                                                               |  |                             |             |  
|Operating costs and expenses:                                                                                                  |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Cost of revenue:                                                                                                               |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Products                                                                                                                       |  |                             | 406,000     |   |                           |   | 456,000     |      |  |   | 723,000     |   |  |   | 868,000     |  
|Services                                                                                                                       |  |                             | 250,000     |   |                           |   | 279,000     |      |  |   | 486,000     |   |  |   | 499,000     |  
|Research and development expense                                                                                               |  |                             | 356,000     |   |                           |   | 216,000     |      |  |   | 598,000     |   |  |   | 391,000     |  
|General and administrative expense                                                                                             |  |                             | 2,371,000   |   |                           |   | 601,000     |      |  |   | 7,669,000   |   |  |   | 1,097,000   |  
|                                                                                                                               |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|                                                                                                                               |  |                             |             |  
|Total operating costs and expenses                                                                                             |  |                             | 3,383,000   |   |                           |   | 1,552,000   |      |  |   | 9,476,000   |   |  |   | 2,855,000   |  
|                                                                                                                               |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|                                                                                                                               |  |                             |             |  
|Income (Loss) from operations                                                                                                  |  |                             | (2,162,000  | ) |                           |   | (311,000    | )    |  |   | (7,419,000  | ) |  |   | (177,000    | )
|                                                                                                                               |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|                                                                                                                               |  |                             |             |  
|Other income (expense):                                                                                                        |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Interest expense, net                                                                                                          |  |                             | (1,095,000  | ) |                           |   | (2,082,000  | )    |  |   | (2,704,000  | ) |  |   | (3,860,000  | )
|Gain/(Loss) on derivative liabilities                                                                                          |  |                             | 3,244,000   |   |                           |   | (25,245,000 | )    |  |   | (1,375,000  | ) |  |   | (19,278,000 | )
|Other income/(expense), net                                                                                                    |  |                             | 17,000      |   |                           |   | 206,000     |      |  |   | 21,000      |   |  |   | 204,000     |  
|                                                                                                                               |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|                                                                                                                               |  |                             |             |  
|Total other income (expense)                                                                                                   |  |                             | 2,166,000   |   |                           |   | (27,121,000 | )    |  |   | (4,058,000  | ) |  |   | (22,934,000 | )
|                                                                                                                               |  |                             |             |  
|Income (Loss) before reorganization items, non-controlling interest in losses from variable interest entities and income
taxes |  |                             | 4,000       |   |                           |   | (27,432,000 | )    |  |   | (11,477,000 | ) |  |   | (23,111,000 | )
|                                                                                                                               |  |                             |             |  
|Reorganization items:                                                                                                          |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Gain on reorganization                                                                                                         |  |                             | 78,000      |   |                           |   |            |      |  |   | 132,000     |   |  |   |            |  
|Professional fees                                                                                                              |  |                             |            |   |                           |   | (95,000     | )    |  |   | (253,000    | ) |  |   | (236,000    | )
|Provision for indemnity agreements                                                                                             |  |                             |            |   |                           |   | 1,375,000   |      |  |   |            |   |  |   | 2,062,000   |  
|                                                                                                                               |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|                                                                                                                               |  |                             |             |  
|Total reorganization items                                                                                                     |  |                             | 78,000      |   |                           |   | 1,280,000   |      |  |   | (121,000    | ) |  |   | 1,826,000   |  
|                                                                                                                               |  |                             |             |  
|Net income (loss)                                                                                                              |  |                             | 82,000      |   |                           |   | (26,152,000 | )    |  |   | (11,598,000 | ) |  |   | (21,285,000 | )
|Less: Net loss attributable to non-controlling interests                                                                       |  |                             |            |   |                           |   | 97,000      |      |  |   |            |   |  |   | 196,000     |  
|                                                                                                                               |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Net income (loss) attributable to Biovest International, Inc.                                                                  |  | $                           | 82,000      |   |                           | $ | (26,055,000 | )    |  | $ | (11,598,000 | ) |  | $ | (21,089,000 | )
|                                                                                                                               |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|                                                                                                                               |  |                             |             |  
|Income/(Loss) per common share:                                                                                                |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Basic and diluted                                                                                                              |  | $                           | (0.00       | ) |                           | $ | (0.27       | )    |  | $ | (0.09       | ) |  | $ | (0.22       | )
|                                                                                                                               |  |                             |             |  
|Weighted average shares outstanding:                                                                                           |  |                             |             |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Basic and diluted                                                                                                              |  |                             | 140,924,879 |   |                           |   | 97,549,783  |      |  |   | 128,933,007 |   |  |   | 97,549,783  |  

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



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT

SIX MONTHS ENDED MARCH 31, 2011

(unaudited)



|                                                                                    |  |              |             |  |                           |   |           |                    |  |   |                          |  |  |       |              |   |  |   |            |   |  |   |             |  
|----------------------------------------------------------------------------------- |  | ------------ | ----------- |  | ------------------------- | - | --------- | ------------------ |  | - | ------------------------ |  |  | ----- | ------------ | - |  | - | ---------- | - |  | - | ----------- | -
|                                                                                    |  | Common Stock |             |  | AdditionalPaid-in Capital |   |           | AccumulatedDeficit |  |   | Non-ControllingInterests |  |  | Total |             
|                                                                                    |  | Shares       |             |  | Amount                    |   |           |                    |  |  
|Balances October 1, 2010                                                            |  |              | 98,149,783  |  |                           | $ | 981,000   |                    |  | $ | 67,934,000               |  |  | $     | (149,416,000 | ) |  | $ | 3,565,000  |   |  | $ | (76,936,000 | )
|Dissolution of Non-controlling interests pursuant to plan of reorganization         |  |              |            |  |                           |   |          |                    |  |   |                         |  |  |       | 3,565,000    |   |  |   | (3,565,000 | ) |  |   |            |  
|Beneficial conversion feature on Corps Real Note                                    |  |              |            |  |                           |   |          |                    |  |   | 2,139,000                |  |  |       |             |   |  |   |           |   |  |   | 2,139,000   |  
|Conversion of Empery Notes                                                          |  |              | 6,042,803   |  |                           |   | 60,000    |                    |  |   | 3,406,000                |  |  |       |             |   |  |   |           |   |  |   | 3,466,000   |  
|Issuance of common shares for interest on outstanding debt                          |  |              | 81,786      |  |                           |   | 1,000     |                    |  |   | 60,000                   |  |  |       |             |   |  |   |           |   |  |   | 61,000      |  
|Shares issued pursuant to plan of reorganization                                    |  |              | 36,368,126  |  |                           |   | 364,000   |                    |  |   | 33,505,000               |  |  |       |             |   |  |   |           |   |  |   | 33,869,000  |  
|Adjustment to provisions of outstanding warrants pursuant to plan of reorganization |  |              |            |  |                           |   |          |                    |  |   | 9,178,000                |  |  |       |             |   |  |   |           |   |  |   | 9,178,000   |  
|Employee share-based compensation                                                   |  |              | 56,000      |  |                           |   | 1,000     |                    |  |   | 6,361,000                |  |  |       |             |   |  |   |           |   |  |   | 6,362,000   |  
|Issuance of warrants upon execution of new facility lease                           |  |              |            |  |                           |   |          |                    |  |   | 825,000                  |  |  |       |             |   |  |   |           |   |  |   | 825,000     |  
|Issuance of warrants for placement fee on Empery Notes                              |  |              |            |  |                           |   |          |                    |  |   | 422,000                  |  |  |       |             |   |  |   |           |   |  |   | 422,000     |  
|Shares issued upon exercise of warrants                                             |  |              | 1,075,622   |  |                           |   | 11,000    |                    |  |   | 979,000                  |  |  |       |             |   |  |   |           |   |  |   | 990,000     |  
|Shares issued upon exercise of options                                              |  |              | 100,000     |  |                           |   | 1,000     |                    |  |   | 5,000                    |  |  |       |             |   |  |   |           |   |  |   | 6,000       |  
|Net Income (Loss)                                                                   |  |              |            |  |                           |   |          |                    |  |   |                         |  |  |       | (11,598,000  | ) |  |   |           |   |  |   | (11,598,000 | )
|                                                                                    |  |              |             |  |                           |   |           |                    |  |   |                          |  |  |       |              |   |  |   |            |   |  |   |             |  
|                                                                                    |  |              |             |  |                           |  
|Balances March 31, 2011                                                             |  |              | 141,874,120 |  |                           | $ | 1,419,000 |                    |  | $ | 124,814,000              |  |  | $     | (157,449,000 | ) |  | $ |           |   |  | $ | (31,216,000 | )
|                                                                                    |  |              |             |  |                           |   |           |                    |  |   |                          |  |  |       |              |   |  |   |            |   |  |   |             |  

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



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                                                    |  |                            |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                    |  | Six Months Ended March 31, |            
|                                                                                                                    |  | 2011                       |             |   | 2010 |  
|Cash flows from operating activities:                                                                               |  |                            |             |   |      |   |             |  
|Net loss                                                                                                            |  | $                          | (11,598,000 | ) |      | $ | (21,285,000 | )
|Adjustments to reconcile net income (loss) to net cash flows from operating activities before reorganization
items: |  |                            |             |   |      |   |             |  
|Depreciation                                                                                                        |  |                            | 24,000      |   |      |   | 29,000      |  
|Amortization of patents                                                                                             |  |                            | 15,000      |   |      |   | 15,000      |  
|Employee share-based compensation                                                                                   |  |                            | 6,314,000   |   |      |   | 63,000      |  
|Amortization of discount on notes payable                                                                           |  |                            | 240,000     |   |      |   | 904,000     |  
|Amortization of deferred loan costs                                                                                 |  |                            | 938,000     |   |      |   | 32,000      |  
|Common shares issued for interest on outstanding debt                                                               |  |                            | 376,000     |   |      |   |            |  
|(Gain)/Loss on derivative liabilities                                                                               |  |                            | 1,375,000   |   |      |   | 19,278,000  |  
|Changes in cash resulting from changes in:                                                                          |  |                            |             |   |      |   |             |  
|Operating assets                                                                                                    |  |                            | (39,000     | ) |      |   | 13,000      |  
|Operating liabilities                                                                                               |  |                            | 810,000     |   |      |   | 3,081,000   |  
|                                                                                                                    |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Net cash flows from operating activities before reorganization items                                                |  |                            | (1,545,000  | ) |      |   | 2,130,000   |  
|                                                                                                                    |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Reorganization items:                                                                                               |  |                            |             |   |      |   |             |  
|Gain on reorganization plan                                                                                         |  |                            | (132,000    | ) |      |   |            |  
|Change in accrued professional fees                                                                                 |  |                            | (278,000    | ) |      |   | 16,000      |  
|Change in provision for indemnity agreements                                                                        |  |                            |            |   |      |   | (2,062,000  | )
|                                                                                                                    |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Net change in cash flows from reorganization items                                                                  |  |                            | (410,000    | ) |      |   | (2,046,000  | )
|                                                                                                                    |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Net cash flows from operating activities                                                                            |  |                            | (1,955,000  | ) |      |   | 84,000      |  
|                                                                                                                    |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Cash flows from investing activities:                                                                               |  |                            |             |   |      |   |             |  
|Purchase of property, plant and equipment                                                                           |  |                            | (120,000    | ) |      |   | (16,000     | )
|                                                                                                                    |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Net cash flows from investing activities                                                                            |  |                            | (120,000    | ) |      |   | (16,000     | )
|                                                                                                                    |  |                           
|Cash flows from financing activities:                                                                               |  |                            |             |   |      |   |             |  
|Repayment of notes payable and long-term debt                                                                       |  |                            | (2,026,000  | ) |      |   | (39,000     | )
|Advances (to)/from related party                                                                                    |  |                            | (46,000     | ) |      |   | 184,000     |  
|Proceeds from long-term debt                                                                                        |  |                            | 7,000,000   |   |      |   |            |  
|Proceeds from exercise of stock options                                                                             |  |                            | 6,000       |   |      |   |            |  
|Payment of deferred financing costs                                                                                 |  |                            | (755,000    | ) |      |   | (40,000     | )
|                                                                                                                    |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Net cash flows from financing activities                                                                            |  |                            | 4,179,000   |   |      |   | 105,000     |  
|                                                                                                                    |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Net change in cash                                                                                                  |  |                            | 2,104,000   |   |      |   | 173,000     |  
|Cash at beginning of period                                                                                         |  |                            | 206,000     |   |      |   | 226,000     |  
|                                                                                                                    |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Cash at end of period                                                                                               |  | $                          | 2,310,000   |   |      | $ | 399,000     |  
|                                                                                                                    |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Supplemental disclosure of cash flow information:                                                                   |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Non-cash financing and investing transactions:                                                                      |  |                            |             |   |      |   |             |  
|                                                                                                                    |  |                           
|Issuance of warrants                                                                                                |  | $                          | 7,376,000   |   |      | $ |            |  
|Issuance of shares for payment of principal and interest on outstanding debt                                        |  | $                          | 4,745,000   |   |      | $ |            |  
|Issuance of shares to settle pre-petition claims                                                                    |  | $                          | 52,485,000  |   |      | $ |            |  
|Cash paid for interest during period                                                                                |  | $                          | 75,000      |   |      | $ | 94,000      |  

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



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the company:

As a result of Biovest International,
Inc.s (the Company or Biovest) collaboration with the National Cancer Institute (NCI), Biovest is developing BiovaxID® as a personalized therapeutic cancer vaccine for the treatment of non-Hodgkins lymphoma, specifically follicular lymphoma (FL), mantle cell lymphoma
(MCL) and potentially other B-cell blood cancers. Both FL and MCL are generally considered to be incurable with currently approved therapies. These generally fatal diseases arise from the lymphoid tissue and are characterized by an
uncontrolled proliferation and spread throughout the body of mature B-cells, which are a type of white blood cell.

Three clinical trials
conducted under the Companys investigational new drug application (IND) have studied BiovaxID in non-Hodgkins lymphoma. These studies include a Phase 2 clinical trial and a Phase 3 clinical trial in patients with FL, as well
as a Phase 2 clinical trial in MCL patients. The Company believes that these clinical trials have demonstrated that BiovaxID, which is personalized and autologous (derived from a patients own tumor cells), has an excellent safety profile and
is effective in the treatment of these life-threatening diseases.

To support Biovests planned commercialization of
BiovaxID, Biovest developed an automated cell culture instrument called AutovaxID. Biovest believes that
AutovaxID has significant potential application in the production of a broad range of patient-specific medicines, such as BiovaxID as well as other monoclonal antibodies. Biovest is collaborating with the U.S. Department of Defense to further
develop AutovaxID and to explore potential production of additional vaccines, including vaccines for viral indications such as influenza. AutovaxID is automated and computer controlled to improve cell production reliability and to maximize cell
production. AutovaxID uses a disposable production unit which Biovest anticipates will minimize the need for Federal Food and Drug Administration (FDA) required clean rooms in the production process and provides for robust
and dependable manufacturing while complying with the industry current good manufacturing practices (cGMP) standards. AutovaxID has a small footprint and supports scalable production.

Biovest also manufactures instruments and disposables used in the hollow-fiber production of cell culture products. Biovests hollow-fiber cell
culture products and instruments are used by biopharmaceutical and biotech companies, medical schools, universities, research facilities, hospitals and public and private laboratories. Biovest also produces mammalian and insect cells, monoclonal
antibodies, recombinant and secreted proteins and other cell culture products using Biovests unique capability, expertise and proprietary advancements in the cell production process known as hollow fiber perfusion.

Biovests business consists of three primary business segments: development of BiovaxID and potentially other B-cell blood cancer vaccines; the
manufacture and sale of AutovaxID and other instruments and consumables; and commercial production of cell culture products and services.

As
of March 31, 2011, Biovest is a 63% owned subsidiary of Accentia Biopharmaceuticals, Inc. (Accentia).

2. Chapter 11
Reorganization:

On November 10, 2008, Biovest, along with its subsidiaries, Biovax, Inc., AutovaxID, Inc., Biolender LLC and
Biolender II LLC (collectively, the Debtors) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (Chapter 11) in the U.S. Bankruptcy Court for the Middle District of Florida,
Tampa Division (the Bankruptcy Court). During the pendency of the Chapter 11 proceedings, the Company operated its business as a debtor-in-possession in accordance with the provisions of Chapter 11, and subject to the jurisdiction
of the Bankruptcy Court. On August 16, 2010, Biovest filed its First Amended Joint Plan of Reorganization, and, on October 25, 2010, Biovest filed its First Modification to the First Amended Joint Plan of Reorganization (collectively and
as amended and supplemented, the Plan). On October 27, 2010, the Bankruptcy Court held a Confirmation hearing and confirmed the Plan, and, on November 2, 2010, the Bankruptcy Court entered an Order Confirming Debtors
First Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (the Confirmation Order), which approved and confirmed the Plan, as modified by the Confirmation Order. Biovest emerged from Chapter 11 protection, and
the Plan became effective, on November 17, 2010 (the Effective Date). The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



2. Chapter 11 Reorganization (continued):



The method and timing of payments by the Debtors for their prepetition obligations were addressed in the
Plan and are discussed in detail in the footnotes below.

Amendments to Articles of Incorporation or Bylaws:

On November 17, 2010, the Company amended and restated its certificate of incorporation and its bylaws to incorporate provisions
(a) required by the Plan, the Confirmation Order, and/or the U.S. Bankruptcy Code, and (b) granting the Companys senior, secured creditor, Laurus Master Fund, Ltd. (in liquidation) (Laurus) the right, upon an event of
default under Section 20(a) of that certain Term Loan and Security Agreement, executed on the Effective Date, by and among Laurus, the lenders party thereto, the Company, and the Companys subsidiaries (after giving effect to any
applicable grace period provided therein), to appoint and maintain one-third (1/3) of the total number of directors of the Company (thereafter, such right to appoint directors will continue notwithstanding the Companys cure of any such event of default until both the
Laurus/Valens Term A Notes and the Laurus/Valens Term B Notes have been paid in full).

3. Significant accounting policies:

Basis of presentation:

The accompanying unaudited condensed consolidated 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 interim 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 interim financial
statements.

Operating results for the three and six month periods ended March 31, 2011, are not necessarily indicative of the results
that may be expected for the entire fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended September 30,
2010.

Principles of Consolidation:

The condensed consolidated financial statements represent the consolidation of wholly-owned companies and interests in variable interest entities where the Company has a controlling financial interest or
has been determined to be the primary beneficiary under Accounting Standards Codification (ASC) Topic 810  Consolidation.

The condensed consolidated financial statements include Biovest International, Inc., its wholly owned subsidiaries Biovax, Inc., AutovaxID, Inc.,
Biolender LLC, and Biolender II, LLC (collectively, the Companys Subsidiaries; and certain variable interest entities of the Company, Biovax Investment LLC, Telesis CDE Two LLC, AutovaxID Investment LLC, and St. Louis New Markets
Tax Credit Fund II LLC (collectively, the Companys VIEs). As a result of the Plan, all interests in the Companys VIEs were liquidated as of the Effective Date. Also as a result of the Plan, the Companys Subsidiaries
were also liquidated as of the Effective Date. Accordingly, the condensed consolidated financial statements include the results of the Companys VIEs and the Companys Subsidiaries through November 17, 2010.

All significant inter-company balances and transactions have been eliminated.

Accounting for Reorganization Proceedings:

ASC Topic 852  Reorganizations,
which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11
petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated
with the reorganization and restructuring of the business must be reported separately as reorganization items in the statements of operations beginning in the quarter ending December 31, 2008. The balance sheet must distinguish prepetition
liabilities subject to compromise from both those prepetition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to
be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts. In addition, cash provided by reorganization items must be disclosed separately in the statement of cash flows. Biovest became subject to ASC Topic 852 effective on
November 10, 2008, emerged from Chapter 11 protection on November 17, 2010 and has segregated those items as outlined above for all reporting periods between such dates.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



3. Significant accounting policies (continued):



Pursuant to the Companys Plan, holders of existing voting shares of the Companys stock
immediately before Plan confirmation received more than 50 percent of the voting shares of the emerging entity, thus the Company did not adopt fresh-start reporting upon emergence from Chapter 11. The Company instead followed the guidance as
described in ASC 852-45-29 for entities which do not qualify for fresh-start reporting. Liabilities compromised by the Companys Plan were stated at present values of amounts to be paid, and forgiveness of debt was reported as an extinguishment
of debt and classified in accordance with ASC Topic 225.

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 dates of the condensed consolidated financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ from those estimates.

Inventories:

Inventories are recorded at the lower of cost or market with cost determined using the first-in, first-out (FIFO) method.

Property and equipment:

Property and
equipment are recorded at cost. Depreciation for property and equipment is computed using the straight-line method over the estimated useful lives of three to seven years. Leasehold improvements are amortized over the shorter of their economic lives
or the lease term.

Reorganization value in excess of amounts allocated to identifiable assets:

Reorganization value in excess of amounts allocated to identifiable assets relates to the Companys cell culture and instrument manufacturing
segments located in Minneapolis, MN, which continue to be profitable segments of the Company. Reorganization value is tested for impairment annually or whenever there is an impairment indication. The Company has not recorded any impairment losses as
a result of these evaluations.

Patents and trademarks:

Costs incurred in relation to patent applications are capitalized as deferred patent costs. If and when a patent is issued, the related patent application costs are transferred to the patent account and
amortized over the estimated useful life of the patent. If it is determined that a patent will not be issued, the related patent application costs are charged to expense at the time such determination is made. Patent and trademark costs are recorded
at historical cost. Patent and trademark costs are being amortized using the straight-line method over their estimated useful lives of six years for patents and twenty years for trademarks.

Deferred Financing Costs:

Deferred financing costs include fees paid in cash or through
the issuance of warrants in conjunction with obtaining notes payable and long-term debt and are amortized over the term of the related financial instrument.

Contractual Interest Expense:

Contractual interest expense represents amounts due under
the contractual terms of outstanding debt, including debt subject to compromise for which interest expense may not be recognized in accordance with the provisions of ASC Topic 852. The Companys voluntary petition for bankruptcy on
November 10, 2008 triggered default provisions on certain of the Companys pre-petition debt, which allowed for the accrual of additional interest and fees above the contractual rate. The Company recorded interest expense at the default
rate on its pre-petition debt for periods after November 10, 2008, due to the uncertain nature of the provisions of the Plan prior to its confirmation. The Company emerged from Chapter 11 protection, and the Plan became effective on
November 17, 2010. The Plan sets forth the interest each class of creditors shall receive as part of their allowed claim.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



3. Significant accounting policies (continued):



Carrying value of long-lived assets:

The carrying values of the Companys long-lived assets are evaluated whenever events or changes in circumstances indicate that the carrying amount might not be recoverable. This assessment may be
based upon managements experience in the industry, historical and projected sales, current backlog, and expectations of undiscounted future cash flows. The Company reviews the valuation and amortization of those long-lived assets to determine
possible impairment by comparing the carrying value to projected undiscounted future cash flows of the related assets. During the six months ended March 31, 2011, the Company noted no events that would give it reason to believe that impairment
on the Companys long-lived assets is necessary.

Financial instruments:

Financial instruments, as defined in ASC Topic 825, consist of cash, evidence of ownership in an entity and contracts that both (i) impose on one entity a contractual obligation to deliver cash or
another financial instrument to a second entity, or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another
financial instrument from the first entity or (b) to exchange other financial instruments on potentially favorable terms with the first entity. Accordingly, the Companys financial instruments consist of cash, accounts receivable, accounts
payable, accrued liabilities, notes payable, long-term debt, royalty liabilities, and derivative financial instruments.

The Company carries
cash, accounts receivable, accounts payable, and accrued liabilities at historical costs of which their respective the estimated fair values of these assets and liabilities approximate carrying values due to their current nature. The Company also
carries notes payable and long-term debt at historical cost less discounts from warrants issued as loan financing costs; however, fair values of these debt instruments are estimated for disclosure purposes based upon the present value of the
estimated cash flows at market interest rates applicable to similar instruments.

Fair Value of Financial Assets and Liabilities:

The Company measures the fair value of financial assets and liabilities in accordance with GAAP which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value measurements.

GAAP defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also
establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes three levels of inputs that may be used to measure fair
value:

Level 1  quoted prices in active markets for identical assets or liabilities

Level 2  quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3  inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

The Company generally does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the
Company and its consolidated subsidiaries have entered into certain other financial instruments and contracts, such as debt financing arrangements and freestanding warrants with features that are either (i) not afforded equity classification,
(ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. These instruments are required to be carried as derivative liabilities, at fair value.

The Company generally uses the Black-Scholes-Merton option valuation technique because it embodies all of the requisite assumptions (including trading
volatility, estimated terms and risk free rates) necessary to measure the fair value of these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are
likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the Companys trading market price and the
trading market price of various peer companies, which have historically had high volatility. Since derivative financial instruments are initially and subsequently carried at fair value, the Companys income will reflect the volatility in these
estimate and assumption changes.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



3. 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 and, as such, are not recognized as revenue until product delivery. 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 the 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. 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. 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 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.

Grant Revenue:

Grant revenue is the
result of the Company being awarded the Qualifying Therapeutic Discovery Program Grant from the federal government during 2010. In accordance with the terms of the Qualifying Therapeutic Discovery Program Grant, grant revenue is recognized up to 50%
of the reimbursable expenses incurred during 2010 and 2009.

Research and development expenses:

The Company expenses research and development expenditures as incurred. Such costs include payroll and related costs, facility costs, consulting and
professional fees, equipment rental and maintenance, lab supplies, and certain other indirect cost allocations that are directly related to research and development activities.

Shipping and handling costs:

Shipping and handling costs are included as a component of
cost of revenue in the accompanying consolidated statements of operations.

Recent accounting pronouncements:

In June 2008, the FASB issued new guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an
entitys own stock. The Company adopted this new guidance effective October 1, 2009. Certain of the Companys outstanding warrants and convertible debt contain features which fall under the scope of this guidance resulting in a
decrease of $7.0 million and $9.3 million to the October 1, 2009 balances of additional paid-in capital and accumulated deficit respectively.

In June 2009, the FASB issued new guidance amending the existing pronouncement related to the consolidation of variable interest entities. This new guidance requires the reporting entities to evaluate
former Qualifying Special Purpose Entity for consolidation, changes the approach to determine a variable interest entitys primary beneficiary from a quantitative assessment to a qualitative assessment designed to identify a controlling
financial interest, and increases the frequency of required assessments to determine whether the Company is the primary beneficiary of any variable interest entities to which the Company is a party. This new guidance became effective for the Company
on October 1, 2010 and did not have a material impact on our consolidated financial statements.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



3. Significant accounting policies (continued):



In December 2010, the FASB issued Accounting Standards Update (ASU) 2010-27 Fees Paid
to the Federal Government by Pharmaceutical Manufacturers amending Accounting Standards Codification (ASC) 720 Other Expenses to address questions concerning how pharmaceutical manufacturers should recognize the annual
fees imposed by the Patient Protection and Affordable Care Act for each calendar year beginning January 1, 2011. The ASU requires that the liability related to the annual fee be estimated and recorded in full upon the first qualifying sale with
a corresponding deferred cost that is amortized to expense over the calendar year that it is payable. The amendment is effective commencing with the quarter ended March 31, 2011 and did not have significant material impact on the Companys
financial statements.

In December 2010, the FASB issued ASU 2010-28 Intangibles  Goodwill and Other, which modifies the
goodwill impairment test for reporting units with zero or negative carrying amounts as required by ASC Topic 350. Under the amendment, an entity with reporting units that have carrying amounts that are zero or negative is required to assess whether
it is more likely than not that the reporting units goodwill is impaired. If this determination is made, the entity should perform Step 2 of the goodwill impairment test for those reporting unit(s). This update became effective beginning with
the quarter ended March 31, 2011 and did not have a material impact on the Companys financial statements.

ASU No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820)  Improving Disclosures About Fair Value Measurements, requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or
liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed
separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross
presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category),
which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) companys should provide disclosures about the valuation techniques and inputs used to measure fair value for
both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements
of assets and liabilities included in Level 3 of the fair value hierarchy was required for the Company beginning January 1, 2011. The remaining disclosure requirements and clarifications made by ASU 2010-06 became effective for the Company on
January 1, 2010.

4. Liquidity and management plans:

As of March 31, 2011, the Company had an accumulated deficit of approximately $157.4 million and working capital of approximately $2.3 million. This figure does not include those liabilities which
are subject to compromise through the Companys Chapter 11 proceedings. It is expected that the ultimate outcome of these claims will be determined by the Court within the next twelve months. The Companys independent auditors issued a
going concern uncertainty on the financial statements for the year ended September 30, 2010, 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.

Regulatory strategy and commercialization expenditures:

The Company completed its Phase 3 clinical trial of BiovaxID® for the indication of FL. Under the Companys current regulatory strategy, the Company is performing in-depth analyses of the available clinical trial data in
preparation for submission of the data to the Federal Food and Drug Administration (FDA) and European Medicines Agency (EMEA). Based upon a recommendation from the independent Data Monitoring Committee (DMC) which
monitors the safety and efficacy profile of the clinical trial and the Companys analysis of the available clinical trial data, the Company plans to seek accelerated and conditional approval of BiovaxID with the FDA, EMEA, and other
international agencies, for the indication of FL. Pending the outcome of these anticipated applications for accelerated and conditional approval, the Company has ceased enrolling new patients in its Phase 3 clinical trial and has discontinued, most
clinical trial activities which had the effect of decreasing clinical trial expenses compared to those recorded for prior periods. Accelerated or conditional approval would require the Company to perform additional clinical studies as a condition to
continued marketing of BiovaxID. Accordingly, should the Company receive accelerated and/or conditional approval, clinical trial activities and related expenses may return to the levels experienced in periods prior to the application for conditional
approval until any such clinical trial activity is completed. There can be no assurances the Company will receive accelerated or conditional approval. The Companys ability to timely access required financing will continue to be
essential to support the ongoing commercialization efforts. The Companys inability to obtain required funds or any substantial delay in obtaining required funds will have a material adverse effect on the ongoing commercialization efforts.



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4. Liquidity and management plans (continued):



Chapter 11 Plan of Reorganization:

On November 17, 2010 (the Effective Date), Biovest emerged from Chapter 11 protection, and the Companys Plan of Reorganization (the Plan) became effective. In connection
with the emergence from bankruptcy, the Company entered into a $7.0 million exit financing with an accredited investor group with the services of Roth Capital Partners, LLC, as placement agent. The exit financing provided the Company with
working capital for general corporate and research and development activities including paying the Companys near-term obligations under the Plan. The following is a summary of certain material provisions of the Plan. The summary does not
purport to be complete and is qualified in its entirety by reference to all of the provisions of the Plan.



| |  |  | Corps Real Note: On the Effective Date, the Company executed and delivered in favor of Corps Real, LLC, an Illinois limited liability company
(Corp Real) a secured convertible promissory note (the Corps Real Convertible Note) in an original principal amount equal to $2,291,560 which allows the Company to draw up to an additional $0.9 million on the Corps Real
Convertible Note. The Corps Real Convertible Note replaces the $3.0 million secured line of credit promissory note dated December 22, 2008. The Corps Real Convertible Note matures on November 17, 2012 and all principal and accrued but
unpaid interest is due on such date. The Corps Real Convertible Note is secured by a first priority lien on all of the Companys assets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Laurus/Valens Secured Claims: On the Effective Date, Laurus Master Fund, Ltd. (in liquidation), PSource Structured Debt Limited, Valens Offshore
SPV I, Ltd., Valens Offshore SPV II, Corp., Valens U.S. SPV I, LLC, and LV Administrative Services, Inc. (collectively Laurus/Valens), the Company issued to Laurus/Valens term notes (the Laurus/Valens Term A Notes) in
the principal amount of $24.9 million, in compromise and satisfaction of secured claims prior to the Effective Date. The Laurus/Valens Term A Notes mature on November 17, 2012. On November 18, 2010, the Company prepaid the Laurus/Valens
Term A Notes in an amount equal to $1.4 million from the proceeds received from the $7.0 million exit financing.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On the Effective Date, the Company issued to Laurus/Valens term notes (the Laurus/Valens Term B Notes) in the principal amount of $4.16 million, in compromise and satisfaction of secured
claims prior to the Effective Date. The Laurus/Valens Term B Notes mature on November 17, 2013. The Laurus/Valens Term A Notes and the Laurus/Valens Term B Notes will be secured by a first lien on all of the assets of the Company and its
subsidiaries, junior only to the priority lien to Corps Real and to certain permitted liens.



| |  |  | Conversion of Secured Notes held by Accentia: On the Effective Date, the entire pre-petition claim including accrued interest (approximately
$13.5 million) due from the Company to Accentia, the Companys majority shareholder, was converted into shares of the Companys common stock at a conversion rate equal to $0.75 per share, resulting in the issuance of 17,925,720 shares of
the Companys common stock.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 2008 Secured Debentures: On the Effective Date, two holders of the Companys 2008 secured debentures, including one of the Companys
directors and an entity affiliated with the Companys CEO/Chairman, elected to convert their entire outstanding principal balance ($0.5 million) plus accrued interest into shares of the Companys common stock at a conversion rate equal to
$1.66 per share resulting in the issuance of 331,456 shares of the Companys common stock. One additional holder of the Companys 2008 secured debentures, elected to convert their entire outstanding principal balance of $0.3 million plus
accrued interest into 550,000 shares of the Companys common stock, issuable in eight quarterly installments of 68,750 shares, with the first installment issued on November 17, 2010. The final holder of the Companys 2008 secured
debentures, Valens U.S. SPV I, LLC, received consideration for their claim in accordance with the Laurus/Valens Term A and Term B Notes previously discussed.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Claims of Ronald E. Osman: On the Effective Date, the holder of the Companys May 9, 2008 promissory note, Ronald E. Osman, who is a
director of the Company, elected to convert the entire outstanding principal balance under the promissory note (approximately $1.0 million) plus accrued interest into shares of the Companys common stock at a conversion rate equal to $1.66 per
share, resulting in the issuance of 608,224 shares of the Companys common stock.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Plan Distributions to Unsecured Creditors: On the Effective Date, the Company became obligated to pay to the Companys unsecured creditors
approximately $2.7 million in cash together with interest at five percent (5%) per annum in one installment on March 27, 2014. These unsecured claims included the Pulaski Bank notes, the Southwest Bank note, and the related guarantor
indemnities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Also on the Effective Date, the Company issued to holders of approximately $3.5 million in
principal amount of Class 8 unsecured claims who elected to receive payment in equity as provided in the Plan a total of 2.1 million shares (the Class 8 Plan Shares) of the Companys common stock, at an effective
conversion rate equal to $1.66 per share.



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4. Liquidity and management plans (continued):



| |  |  | Class 12 Equity Interests: Each of the Companys common stockholder on the Effective Date, was deemed to receive one (1) share of
reorganized Biovest common stock (the Class 12 Plan Shares) for each share of existing Biovest common stock held by such stockholder as of the Effective Date. The Companys Class 12 Plan Shares were deemed issued pursuant to
Section 1145 of the Bankruptcy Code and do not have any legend restricting the sale thereof under federal securities laws.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | April 2006 NMTC Transaction: The Company and certain of its affiliates entered into an agreement in July 2010 (the Worcester Restructuring
Agreement) with Telesis CDE Corporation and Telesis CDE Two, LLC (collectively, Telesis), contingent upon submission to and approval by the Bankruptcy Court. The Worcester Restructuring Agreement effectively terminates all
agreements and obligations of all parties pursuant to the New Markets Tax Credit transaction originally closed on April 25, 2006 (the April 2006 NMTC Transaction). In consideration for the termination, Telesis retained an unsecured
claim in the Companys Chapter 11 proceeding in the amount of $0.3 million along with a settlement payment in the amount of $85,000 to defray certain legal and administrative expenses incurred by Telesis. This Worcester Restructuring
Agreement and the compromise of the outstanding claims against the Company and its affiliates was approved by the Bankruptcy Court in an Order entered on December 1, 2010. As a result, the Companys guaranty, Accentias guaranty, and
all of the Companys subsidiary guaranties and all other obligations to all parties to the April 2006 NMTC transaction were terminated. The Company has ceased all activities under the April 2006 NMTC Transaction and the Company has liquidated
the subsidiaries created specifically to conduct activities under the April 2006 NMTC Transaction.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | December 2006 NMTC Transaction: The Company and certain of its affiliates entered into an agreement in July 2010 (the St. Louis
Restructuring Agreement) with St. Louis Development Corporation and Saint Louis New Markets Tax Credit Fund II, LLC (collectively SLDC), contingent upon submission to and approval by the Bankruptcy Court. The St. Louis
Restructuring Agreement effectively terminates all agreements and obligations of all parties pursuant to the New Markets Tax Credit transaction originally closed on December 8, 2006 (the December 2006 NMTC Transaction). In
consideration for the termination, SLDC retained an unsecured claim in the Companys Chapter 11 proceeding in the amount of $160,000 along with a settlement payment in the amount of $62,000, to defray certain legal and administrative expenses
incurred by SLDC. This St. Louis Restructuring Agreement and the compromise of the outstanding claims against Biovest was approved by the Bankruptcy Court in an Order entered on December 1, 2010. As a result, the Companys guaranty,
Accentias guaranty, and all of the Companys subsidiary guaranties and all other obligations to all parties to the December 2006 NMTC transaction were terminated. The Company has ceased all activities under the December 2006 NMTC
Transaction and the Company has liquidated the subsidiaries created specifically to conduct activities under the December 2006 NMTC Transaction.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Termination of Warrants and Issuance of Shares: On the Effective Date, all of the following warrants (the Laurus/Valens
Warrants) were terminated and cancelled:
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the common stock purchase warrant dated March 31, 2006, issued by the Company to Laurus, for the purchase of up to 18,087,889 shares of the
Companys common stock at an exercise price of $0.01 per share. As of November 17, 2010, 13,371,358 remained outstanding and were thus terminated pursuant to the Plan; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the common stock purchase warrant dated September 22, 2008, issued by the Company to Valens U.S., for the purchase of up to 1,015,625 shares of
the Companys common stock at an exercise price of $0.40 per share.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In consideration for the
cancellation of the Laurus/Valens Warrants, on the Effective Date, Laurus/Valens received 14,834,782 shares of the Companys common stock (the Laurus/Valens Plan Shares). The Laurus/Valens Plan Shares were issued pursuant to
Section 1145 of the U.S. Bankruptcy Code and do not have any legend restricting the sale thereof under federal securities laws, but the transfer thereof is subject to certain restrictions and conditions set forth in the Plan.



| |  |  | Cancellation and Reduction of Royalty Interests: On the Effective Date, the Company, Accentia, and Laurus/Valens entered into several agreements
(the Laurus/Valens Royalty Termination Agreements) terminating the following royalties pursuant to the Plan. As a result of the foregoing agreements, the aggregate royalty obligation on BiovaxID and the Companys other biologic
products was reduced from 35.25% to 6.30%. Additionally, the aggregate royalty obligation on the AutovaxID instrument was reduced from 3.0% to no obligation, including the elimination of the $7.5 million minimum royalty obligation. Furthermore, the
Royalty Agreement by and between the Company and Accentia, dated as of October 31, 2006, as amended, was terminated, which resulted in the cancellation of all royalty interest of Accentia in the Companys biologic products.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



4. Liquidity and management plans (continued):



The Qualifying Therapeutic Discovery Project:

On October 31, 2010, the Company received notice from the U.S. Internal Revenue Service (IRS) that the Companys application to
receive a Federal grant in the amount of approximately $244,000 under the Qualifying Therapeutic Discovery Project was approved. The Qualifying Therapeutic Discovery Project tax credit is provided under new section 48D of the Internal Revenue Code,
enacted as part of the Patient Protection and Affordable Care Act of 2010. The credit is a tax benefit targeted to therapeutic discovery projects that show a reasonable potential to:



| |  |  | Result in new therapies to treat areas of unmet medical need or prevent, detect or treat chronic or acute diseases and conditions,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduce the long-term growth of health care costs in the United States, or
| | - |  | -------------------------------------------------------------------------



| |  |  | Significantly advance the goal of curing cancer within 30 years.
| | - |  | ----------------------------------------------------------------

Allocation of the credit will also take into consideration which projects show the greatest potential to create and sustain high-quality, high-paying U.S. jobs and to advance U.S. competitiveness in life,
biological and medical sciences. The funds were awarded to support the advancement of BiovaxID.

Minneapolis, Minnesota Facility Lease:

On December 2, 2010, the Company entered into a lease agreement (the Lease) with JMS Holdings, LLC (the
Landlord) for continued use and occupancy of the Companys existing facility in Minneapolis, Minnesota. The Lease has an initial term of ten (10) years, with provisions for extensions thereof, and will allow the Company to
continue and to expand its operations in the Minneapolis facility which it has occupied for over 25 years. The Lease also contains provisions regarding a strategic collaboration whereby the Landlord, with cooperation in the form of loans from the
City of Coon Rapids and the State of Minnesota, has agreed to construct certain improvements to the leased premises to allow the Company to perform GMP manufacturing of biologic products in the Minneapolis facility, with the costs of the
construction to be amortized over the term of the Lease. In connection with this strategic agreement, the Company issued to the Landlord a warrant (the Warrant) to purchase up to one million shares of the Companys common stock,
vesting 60 days from the date of issuance, with an initial exercise price of $1.21 per share and a term of five years from the earlier to occur of (i) the date that the shares underlying the warrant become registered (the Company has agreed to
file a registration statement including the shares underlying the Warrant within one year of the date of issuance) or (ii) the date that the shares become otherwise freely-tradable pursuant to Rule 144. Resale of the underlying shares is
subject to restrictions pursuant to Rule 144 and certain agreed lock-up provisions.

Additional expected financing activity:

Management intends to attempt to meet its cash requirements through proceeds from its cell culture and instrument manufacturing
activities, the use of cash on hand, trade vendor credit, short-term borrowings, debt and equity financings, and strategic transactions such as collaborations and licensing. The Companys ability to continue present operations, pay its
liabilities as they become due, and meet its obligations for vaccine development is dependent upon the Companys ability to obtain significant external funding in the short term. Additional sources of funding have not been established; however,
additional financing is currently being sought by the Company from a number of sources, including the sale of equity or debt securities, strategic collaborations, recognized research funding programs, as well as domestic and/or foreign licensing of
BiovaxID. Management is currently in the process of exploring these various financing alternatives. There can be no assurance that the Company will be successful in securing such financing at acceptable terms, if at all. Accordingly, the
Companys ability to continue present operations, pay the Companys existing liabilities as they become due, and the completion of the detailed analyses of the Companys clinical trial is dependent upon its ability to obtain
significant external funding in the near term, which raises substantial doubt about the Companys ability to continue as a going concern. If adequate funds are not available from the foregoing sources in the near term, or if the Company
determines it to otherwise be in the Companys best interest, the Company may consider additional strategic financing options, including sales of assets, or the Company may be required to delay, reduce the scope of, or eliminate one or more of
its research or development programs or curtail some or all of its commercialization efforts.



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5. Concentrations of credit risk and major customer information:

The Company has granted 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 credit evaluations of its customers on an ongoing basis. Three customers accounted for 44% and 55% of revenues for the six months ended March 31, 2011 and 2010, respectively. Three customers accounted for 69% of
trade accounts receivable as of March 31, 2011, compared to the four customers that accounted for 79% of trade accounts receivable as of March 31, 2010. A significant amount of the Companys revenue has been derived from export sales.
The Companys export sales were 22% of revenues for the six months ended March 31, 2011, compared to 27% for the same period in the prior fiscal year. For the six months ended March 31, 2011 and 2010, sales to customers in the United
Kingdom accounted for 19% of total revenue.

6. Inventories:

Inventories consist of the following:



|                |  |                            |         |  |                    |   |         | 
|--------------- |  | -------------------------- | ------- |  | ------------------ | - | ------- | 
|                |  | March 31, 2011 (Unaudited) |         |  | September 30, 2010 |  
|Raw materials   |  | $                          | 271,000 |  |                    | $ | 104,000 | 
|Work-in-process |  |                            | 57,000  |  |                    |   |        | 
|Finished goods  |  |                            | 104,000 |  |                    |   | 313,000 | 
|                |  |                            |         |  |                    |   |         | 
|                |  |                           
|                |  | $                          | 432,000 |  |                    | $ | 417,000 | 
|                |  |                            |         |  |                    |   |         | 

7. Related party transactions:

Notes payable, related party consists of the following:



|                                              |  |                            |   |  |                    |   |           | 
|--------------------------------------------- |  | -------------------------- | - |  | ------------------ | - | --------- | 
|                                              |  | March 31, 2011 (Unaudited) |   |  | September 30, 2010 |  
|Accentia promissory demand notes  prime rate |  | $                          |  |  |                    | $ | 556,000   | 
|Debtor-in-possession note  16%               |  |                            |  |  |                    |   | 1,890,000 | 
|Accrued interest                              |  |                            |  |  |                    |   | 151,000   | 
|                                              |  |                            |   |  |                    |   |           | 
|                                              |  |                           
|                                              |  | $                          |  |  |                    | $ | 2,597,000 | 
|                                              |  |                            |   |  |                    |   |           | 

Accentia promissory demand notes:

On the Effective Date, the entire pre-petition claim due from the Company to Accentia, the Companys majority shareholder, was converted into the Companys common stock at a conversion rate
equal to $0.75 per share, resulting in the issuance of 17,925,720 shares of the Companys common stock. The fair value of these shares (approximately $26.0 million) was recorded against the carrying value of the Accentia notes on
November 17, 2010, resulting in a $5.0 million loss on reorganization which has been recorded on the Companys statement of operations for the six months ended March 31, 2011.

Loan to Accentia:

During the current quarter, the Company has loaned approximately $0.29
million to Accentia, to cover near-term operating expenses which has been classified under other current assets on the Companys balance sheet as of March 31, 2011. It is anticipated that the non-interest bearing loan will be repaid by
Accenti,a prior to the end of the Companys fiscal year.



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7. Related party transactions (continued):



Corps Real Note:

On the Effective Date, Biovest issued a secured convertible promissory note (the DIP Lender Plan Note) in the principal amount of $2,291,560 to Corps Real, LLC (Corps Real) an
Illinois limited liability company, whose principal members are directors of, or affiliated with the Companys directors. The DIP Lender Plan Note allows the Company to draw up to an additional $0.9 million. The DIP Lender Plan Note replaces
the $3.0 million debtor-in-possession secured line of credit promissory note dated December 22, 2008 which was previously executed by the Company in favor of Corps Real. The DIP Lender Plan Note matures on November 17, 2012 and all
principal and accrued but unpaid interest is due on such date. Interest accrues and is payable on the outstanding principal amount of the DIP Lender Plan Note at a fixed rate of sixteen percent (16%) per annum, with interest in the amount of
ten percent (10%) to be paid monthly and interest in the amount of six percent (6%) to accrue and be paid on the maturity date. The Company may prepay the DIP Lender Plan Note in full, without penalty, at any time, and Corps Real may
convert all or a portion of the outstanding balance of the DIP Lender Plan Note into shares of the Companys common stock at a conversion rate of $0.75 per share. The DIP Lender Plan Note is secured by a first priority lien on all of the
Companys assets.

The DIP Lender Plan Note was evaluated under the provisions of ASC 470-20, and was recorded at an initial discount of
$2.1 million charged to additional paid-in capital representing the intrinsic value of the beneficial conversion feature associated with the note. The discount will be amortized to interest expense using the effective interest method over the
two year term of the note. The carrying value of the note is $0.53 million and has been classified long term debt, related party on the Companys balance sheet as of March 31, 2011.

8. Long Term Debt:

Long Term Debt consists of the following:



|                                                                       |  |                            |            |   |                    |   |   | 
|---------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------ | - | - | 
|                                                                       |  | March 31, 2011 (Unaudited) |            |   | September 30, 2010 |  
|Class 8, Unsecured Option A Obligations                                |  | $                          | 2,712,000  |   |                    | $ |  | 
|Class 8, Unsecured Option C Notes                                      |  |                            | 1,520,000  |   |                    |   |  | 
|Exit Financing ($1.934 million principal less $1.876 million discount) |  |                            | 58,000     |   |                    |   |  | 
|Laurus/Valens Term A Notes                                             |  |                            | 23,467,000 |   |                    |   |  | 
|Laurus/Valens Term B Notes                                             |  |                            | 4,160,000  |   |                    |   |  | 
|                                                                       |  |                            |            |   |                    |   |   | 
|                                                                       |  |                            | 31,917,000 |   |                    |   |  | 
|Less: current maturities                                               |  |                            | (1,013,000 | ) |                    |   |  | 
|                                                                       |  |                            |            |   |                    |   |   | 
|                                                                       |  | $                          | 30,904,000 |   |                    | $ |  | 
|                                                                       |  |                            |            |   |                    |   |   | 

Future maturities of long-term debt are as follows:



|                          |  |   |            |  
|------------------------- |  | - | ---------- | -
|Years ending March 31,    |  |   |           
|2012                      |  | $ | 1,013,000  |  
|2013                      |  |   | 25,908,000 |  
|2014                      |  |   | 6,872,000  |  
|                          |  |   |            |  
|                          | 
|Total maturities          |  |   | 33,793,000 |  
|Less unamortized discount |  |   | (1,876,000 | )
|                          |  |   |            |  
|                          | 
|                          |  | $ | 31,917,000 |  
|                          |  |   |            |  



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8. Long Term Debt (continued):



Class 8, Unsecured Option A Obligations:

On the Effective Date, the Company became obligated to the Companys unsecured creditors in the principal amount of approximately $2.7 million in cash together with interest at five percent
(5%) per annum to be paid in one installment on March 27, 2014 (the Option A Obligations). These unsecured claims include, but are not limited to the Pulaski Bank notes, the Southwest Bank note, and the related guarantor
indemnities. The fair value of the Option A Obligations was recorded against the carrying value of each claim holder electing an Option A distribution as of the Effective Date, resulting in a $0.5 million gain on reorganization for the six months
ended March 31, 2011.

Class 8, Unsecured Option C Notes:

On the Effective Date, the Company became obligated to certain of its unsecured creditors in the principal amount of approximately $2.0 million. Each such unsecured creditor received an amount equal to
100% of such unsecured creditors allowed Class 8 unsecured claim (including post-petition interest under the Plan at the rate of three percent (3%) per annum) in a combination of debt and equity resulting in the issuance of a total of
$1.8 million in new notes (the Option C Notes), as well as, 0.2 million shares of the Companys common stock, using an effective conversion rate equal to $1.66 per share. The Option C Notes bear interest at seven percent
(7%) and are convertible into the Companys common stock in seven quarterly installments beginning on February 17, 2011 as follows:



| |  |  | provided that the average of the volume weighted average prices for the Companys common stock for the ten consecutive trading days immediately
preceding each quarterly conversion date (Ten Day VWAP) is at least $1.00 per share, one-eighth
(1/8th) of the Option C Notes plus accrued interest will be
automatically converted into shares of the Companys common stock at a conversion rate equal to the Ten Day VWAP;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if the Ten Day VWAP is less than $1.00 per share, the Option C Notes will not automatically convert into shares of the Companys common stock, but
will instead become payable at maturity (August 17, 2012), unless the Option C Note holder, elects to convert one-eighth (1/8th) of its Option C Notes plus accrued interest into shares of the Companys common stock at a conversion rate equal to $1.00 per share;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any portion of the Option C Notes and any Option C interest that are outstanding at maturity (August 17, 2012) will be due and payable in full, at the
election of Biovest in either cash or in shares of the Companys common stock at a conversion rate equal to the Ten Day VWAP;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if, at any time prior to August 17, 2012, the Ten Day VWAP is at least $1.50 per share, an Option C Note holder, at its option, may convert any or
all of the Option C Notes plus the then accrued and unpaid interest into shares of the Companys common stock at a conversion rate equal to the Ten Day VWAP used for the initial conversion the Effective Date ($1.66 per share); and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if, at any time prior to August 17, 2012, the volume weighted average price for the Companys common stock is at least $1.88 per share for
thirty (30) consecutive trading days, the Company, at its option, may require the conversion of the then aggregate outstanding balance of the Option C Notes plus the then accrued and unpaid Option C interest at a conversion rate equal to the
Ten Day VWAP used for the initial conversion on the Effective Date ($1.66 per share).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On February 17, 2011, with the
Ten Day VWAP at less than $1.00 per share, the Option C Note holder elected to convert one-eighth of the Option C Notes plus accrued interest into shares of the Companys common stock at a conversion rate equal to $1.00 per share, resulting in
the issuance of 391,980 shares of the Companys common stock.

Exit Financing:

On October 19, 2010, the Company completed a financing as part of its Plan (the Exit Financing). Pursuant to the Exit Financing, the
Company issued an aggregate of $7.0 million in principal amount of Debtor-In-Possession Secured Convertible Notes (the Initial Notes) and warrants to purchase shares of the Companys common stock (the Initial Warrants)
to a total of twelve accredited investors (the Buyers). Pursuant to the Exit Financing, the Company issued two types of separate Initial Warrants to the Buyers, Series A Warrants (the Initial Series A Warrants) and Series B
Warrants (the Initial Series B Warrants).

On the Effective Date: (a) the Initial Notes were exchanged pursuant to the
terms of the Plan for new unsecured notes (the Exchange Notes) in the aggregate principal amount of $7.04 million, (b) the Initial Series A Warrants were exchanged pursuant to the terms of the Plan for new warrants to purchase
a like number of shares of Company common stock (the Series A Exchange Warrants), and (c) the Initial Series B Warrants were exchanged pursuant to the terms of the Plan for new warrants to purchase a like number of shares of
the Companys common stock (the Series B Exchange Warrants).



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8. Long Term Debt (continued):



The following are the material terms and conditions of the Exchange Notes:



| |  |  | the Exchange Notes mature on November 17, 2012, and all principal and accrued but unpaid interest is due on such date;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | interest accrues and is payable on the outstanding principal amount of the Exchange Notes at a fixed rate of seven percent (7%) per annum (with a
fifteen percent (15%) per annum default rate), and is payable monthly in arrears. The first interest payment was made on December 1, 2010;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | interest payments are payable at the Companys election in either cash or subject to certain specified conditions, in shares of the Companys
common stock;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Company may from time to time, subject to certain conditions, redeem all or any portion of the outstanding principal amount of the Exchange Notes
for an amount, in cash, equal to 110% of the sum of the principal amount being redeemed and certain make-whole interest payments;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the holders of the Exchange Notes may convert all or a portion of the outstanding balance of the Exchange Notes into shares of the Companys
common stock at a conversion rate of $0.91 per share, subject to anti-dilution adjustments in certain circumstances; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the event that the average of the daily volume weighted average price of the Companys common stock is at least 150% of the then-effective
conversion price for any ten (10) consecutive trading days, the Company, at its option, may upon written notice to the holders of the Exchange Notes, convert the then outstanding balance of the Exchange Notes into shares of the Companys
common stock at the conversion price then in effect under the Exchange Notes.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following are the material terms and
conditions of the Series A Exchange Warrants:



| |  |  | the Series A Exchange Warrants give the Buyers the right to purchase 8,733,096 shares of the Companys common stock (the Series A Warrant
Shares);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Series A Exchange Warrants have an exercise price of $1.20 per share and expire on November 17, 2017; and
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | if the Company issues or sells any options or convertible securities after the issuance of the Series A Exchange Warrants that are convertible into or
exchangeable or exercisable for shares of common stock at a price which varies or may vary with the market price of the shares of common stock, including by way of one or more reset(s) to a fixed price, the investors have the right to substitute any
of the applicable variable price formulation for the exercise price upon exercise of the warrants held.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On
December 22, 2010, the Series B Exchange Warrants were exercised by a cashless exercise and 1,075,622 shares of the Companys common stock were issued to the Buyers.

As of March 31, 2011, a total of $5.1 million in principal on the Exchange Notes had been converted to common stock, resulting in the issuance to the Buyers of 6.0 million shares of the
Companys common stock. The remaining principal balance outstanding on the Exchange Notes is $1.9 million as of March 31, 2011.

The
Exchange Notes and Warrants contain conversion and adjustment features properly classified as derivative instruments required to be recorded at fair value. As a result, the Exchange Notes have been recorded at a discount which will be amortized to
interest expense over two years.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



8. Long Term Debt (continued):



Laurus/Valens Term A and Term B Notes:

On the Effective Date, the Company issued two new notes (the Laurus/Valens Term A Notes and Laurus/Valens Term B Notes) in the aggregate principal amount of $29.06 million to
Laurus/Valens in compromise, and satisfaction of secured claims prior to the Effective Date.

The following are the material terms and
conditions of the Laurus/Valens Term A Notes:



| |  |  | the original principal amount of the Laurus/Valens Term A Note was $24.9 million;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the Laurus/Valens Term A Notes mature on November 17, 2012;
| | - |  | -----------------------------------------------------------



| |  |  | interest accrues at the rate of eight percent per annum (with a twelve percent per annum default rate), and is payable at the time of any principal
payment or prepayment of principal;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Company may prepay the Laurus/Valens Term A Notes, without penalty, at any time; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the Company is required to make mandatory prepayments under the Laurus/Valens Term A Notes as follows:
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | a prepayment equal to thirty percent of the net proceeds (i.e., the gross proceeds received less any investment banking or similar fees and commissions
and legal costs and expenses incurred by the Company) of certain capital raising transactions (with certain exclusions), but only up to the then outstanding principal and accrued interest under the Laurus/Valens Term A Notes;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | from any intercompany funding by Accentia to the Company (with certain exceptions and conditions); and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | a prepayment equal to fifty percent (50%) the of positive net cash flow of the Company for each fiscal quarter after the Effective Date, less the
amount of certain capital expenditures on certain biopharmaceutical products of the Company made during such fiscal quarter or during any prior fiscal quarter ending after November 17, 2010.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On November 18, 2010, the Company prepaid the Laurus/Valens Term A Notes in an amount equal to $1.4 million from the proceeds received in the
Companys Exit Financing.

The following are the material terms and conditions of the Laurus/Valens Term B Notes:



| |  |  | the original principal amount of the Laurus/Valens Term B Note was $4.16 million;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the Laurus/Valens Term B Notes mature on November 17, 2013;
| | - |  | -----------------------------------------------------------



| |  |  | interest accrues at the rate of eight percent per annum (with a twelve percent per annum default rate), and is payable at the time of any principal
payment or prepayment of principal;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Company may prepay the Laurus/Valens Term B Notes, without penalty, at any time; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | provided that the Laurus/Valens Term A Notes have been paid in full, the Company is required to make mandatory prepayments under the Laurus/Valens Term
B Notes from any intercompany funding by Accentia to the Company (with certain exceptions and conditions), but only up to the outstanding principal and accrued interest under the Laurus/Valens Term B Notes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

With the prior written consent of Laurus/Valens, the Company may convert all or any portion of the outstanding principal and accrued interest under
either the Laurus/Valens Term A Notes or the Laurus/Valens Term B Notes into shares of the Companys common stock. The number of shares of the Companys common stock issuable on such a conversion (the Laurus/Valens Conversion
Shares) is equal to (a) an amount equal to the aggregate portion of the principal and accrued and unpaid interest thereon outstanding under the applicable Laurus/Valens Term A Notes or the Laurus/Valens Term B Notes being converted,
divided by (b) ninety percent (90%) of the average closing price publicly reported (or reported by Pink Sheets, LLC) for shares of the Companys common stock for the ten (10) trading days immediately preceding the date of the
notice of conversion.

The Laurus/Valens Term A Notes and the Laurus/Valens Term B Notes are secured by a first lien on all of the assets of
the Company and its subsidiaries, junior only to the lien granted to the DIP Lender and to certain permitted liens. The Laurus/Valens Term A Notes and the Laurus/Valens Term B Notes will also be guaranteed by Accentia (the Accentia
Guaranty), up to a maximum amount of $4,991,360. The Accentia Guaranty will be secured by a pledge by Accentia of 20,115,818 shares of the Companys common stock owned by Accentia and by the assets of Accentias subsidiary, Analytica
International, Inc.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



8. Long Term Debt (continued):



The Laurus/Valens Term A and B Notes have replaced the following obligations due to Laurus and its
affiliates:



| |  |  | the $7.799 million note payable to Laurus originated in March 2006;
| | - |  | -------------------------------------------------------------------



| |  |  | the $0.250 million note payable to Valens Offshore SPV II, Corp originated in October 2007;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | the $0.245 million note payable to Valens U.S. SPV I, LLC originated in October 2007;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the $3.6 million note payable to Valens Offshore SPV II, Corp originated in December 2007;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | the $4.9 million note payable to Valens U.S. SPV I, LLC originated in December 2007;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the $7.5 million minimum royalty due on sales of AutovaxID instrumentation originated in April 2007; and
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the $4.4 million loan modification fee, originated in July 2008, in consideration for modifying the terms of all the then outstanding debt due to
Laurus/Valens.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of the Laurus/Valens Term A and B Notes was recorded against the combined carrying value of
the obligations listed above resulting in a $6.7 million gain on reorganization for the six months ended March 31, 2011.

9.
Derivative liabilities:

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or
foreign-currency risks. However, the Company and its consolidated subsidiaries have entered into certain other financial instruments and contracts, such as debt financing arrangements and freestanding warrants with features that are either
(i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. These instruments are required to be carried as derivative liabilities,
at fair value.

The following table discloses the fair value of the Companys derivative liabilities and their location in the
consolidated balance sheets as of March 31, 2011 and September 30, 2010. The Company held no asset derivatives at either reporting date.



|                                                                     |  |                           |                        |  |                    |   |           |                        |  |  |                                  |  |  |   |            | 
|-------------------------------------------------------------------- |  | ------------------------- | ---------------------- |  | ------------------ | - | --------- | ---------------------- |  |  | -------------------------------- |  |  | - | ---------- | 
|                                                                     |  | Liability Derivatives     |                       
|                                                                     |  | March 31, 2011(unaudited) |                        |  | September 30, 2010 |  
|                                                                     |  | Balance Sheet Location    |                        |  | Fair Value         |   |           | Balance Sheet Location |  |  | Fair Value                       | 
|                                                                     |  |                           |                        | 
|Derivatives not designated as hedging instruments                    |  |                           |                        |  |                    |   |           |                        |  |  |                                  |  |  |   |            | 
|                                                                     |  |                           |                        | 
|Series A Exchange Warrants (Note 8)                                  |  |                           | Derivative Liabilities |  |                    | $ | 3,141,000 |                        |  |  | N/A                              |  |  | $ |           | 
|                                                                     |  |                           |                        | 
|Conversion option on Convertible Note Financing (Note 8)             |  |                           | Derivative Liabilities |  |                    |   | 45,000    |                        |  |  | N/A                              |  |  |   |           | 
|                                                                     |  |                           |                        | 
|Shares due per compromise order                                      |  |                           | Derivative Liabilities |  |                    |   | 239,000   |                        |  |  | N/A                              |  |  |   |           | 
|                                                                     |  |                           |                        | 
|Biovax Investment, LLC investor put option                           |  |                           | N/A                    |  |                    |   |          |                        |  |  | Liabilities subject tocompromise |  |  |   | 136,000    | 
|                                                                     |  |                           |                        | 
|AutovaxID Investment, LLC investor put option                        |  |                           | N/A                    |  |                    |   |          |                        |  |  | Liabilities subject tocompromise |  |  |   | 84,000     | 
|                                                                     |  |                           |                        | 
|Derivatives resulting from issuance of Secured Convertible Debenture |  |                           | N/A                    |  |                    |   |          |                        |  |  | Liabilities subject tocompromise |  |  |   | 1,778,000  | 
|                                                                     |  |                           |                        | 
|Outstanding warrants with contingent exercise provisions             |  |                           | N/A                    |  |                    |   |          |                        |  |  | Liabilities subject tocompromise |  |  |   | 7,595,000  | 
|                                                                     |  |                           |                        | 
|Accentia conversion option                                           |  |                           | N/A                    |  |                    |   |          |                        |  |  | Liabilities subject tocompromise |  |  |   | 8,253,000  | 
|                                                                     |  |                           |                        |  |                    |   |           |                        |  |  |                                  |  |  |   |            | 
|                                                                     |  |                           |                        | 
|Total derivatives not designated as hedging instruments              |  |                           |                        |  |                    | $ | 3,425,000 |                        |  |  |                                  |  |  | $ | 17,846,000 | 
|                                                                     |  |                           |                        |  |                    |   |           |                        |  |  |                                  |  |  |   |            | 



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



9. Derivative liabilities (continued):



Shares due per compromise order:

On the Effective Date, one of the holders of the Companys 2008 secured debentures, elected to convert the entire outstanding principal balance of $0.3 million plus accrued interest into 550,000
shares of the Companys common stock, issuable in eight quarterly installments of 68,750 shares, with the first installment issued on November 17, 2010, and the second installment issued on February 17, 2011. The remaining 412,500
shares of the Companys common stock issuable have been recorded as a derivative liability at fair value on the Companys balance sheet as of March 31, 2011

The following table summarizes assets and liabilities measured at fair value on a recurring basis for the periods presented:



|                               |  |                           |   |  |                    |   |           |         |  |   |       |  |  |         |           |  |         |   |   |         |  |   |            |  |  |   |   |  |  |   |            | 
|------------------------------ |  | ------------------------- | - |  | ------------------ | - | --------- | ------- |  | - | ----- |  |  | ------- | --------- |  | ------- | - | - | ------- |  | - | ---------- |  |  | - | - |  |  | - | ---------- | 
|                               |  | March 31,
2011(unaudited) |   |  | September 30, 2010 |  
|Fair Value Measurements Using: |  | Level 1                   |   |  | Level 2            |   |           | Level 3 |  |   | Total |  |  | Level 1 |           |  | Level 2 |   |   | Level 3 |  |   | Total      | 
|                               |  |                           |   |  |                    |   |           |        
|Assets                         |  |                           |   |  |                    |   |           |         |  |   |       |  |  |         |           |  |         |   |   |         |  |   |            |  |  |   |   |  |  |   |            | 
|                               |  |                           |   |  |                    |   |           |        
|N/A                            |  | $                         |  |  |                    | $ |          |         |  | $ |      |  |  | $       |          |  |         | $ |  |         |  | $ |           |  |  | $ |  |  |  | $ |           | 
|                               |  |                           |   |  |                    |   |           |        
|Liabilities                    |  |                           |   |  |                    |   |           |         |  |   |       |  |  |         |           |  |         |   |   |         |  |   |            |  |  |   |   |  |  |   |            | 
|                               |  |                           |   |  |                    |   |           |        
|Derivative Liabilities         |  | $                         |  |  |                    | $ | 3,425,000 |         |  | $ |      |  |  | $       | 3,425,000 |  |         | $ |  |         |  | $ | 17,846,000 |  |  | $ |  |  |  | $ | 17,846,000 | 

10. Liabilities subject to
compromise:

On the Effective Date, the Company settled the majority of its pre-petition claims. Footnote 4 contains a summary of certain
material provisions of the Plan. As of March 31, 2011, some of the Companys Class 8 unsecured claims remain in dispute. A reserve in the amount of $1.2 million has been established representing the Companys estimate as to the
eventual allowed amount of the aggregate claims. It is anticipated that these claims will be resolved through a combination of issuance of the Companys common stock and long term debt through either a negotiated compromise or an adjudicated
order entered in the Bankruptcy Court.

11. Stock based compensation:

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton valuation model that uses assumptions for expected volatility, expected dividends, expected term, and
the risk-free interest rate. Expected volatilities are based on historical volatility of peer company stock due to the limited trading history of the Companys common stock as well as other factors estimated over the expected term of the
options. The expected term of options granted is derived using the simplified method which computes expected term as the average of the sum of the vesting term plus the contract term. This method is used because the Company does not
currently have adequate historical option exercise or forfeiture information as a basis to determine expected term. The Company has also issued performance based awards, the vesting of which are tied to Companys achievement of specific
pre-defined goals. The Company estimates the likelihood of success at time of grant to determine inputs to the Black-Scholes-Merton valuation model. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the
period of the expected term.

Common stock options outstanding and exercisable as of March 31, 2011 are as follows:



|                               |  |        |            |   |                            |   |      |                                    |  |  |                          |  |  |   |            | 
|------------------------------ |  | ------ | ---------- | - | -------------------------- | - | ---- | ---------------------------------- |  |  | ------------------------ |  |  | - | ---------- | 
|                               |  | Shares |            |   | Weighted Ave.ExercisePrice |   |      | Weighted Ave ContractualLife (yrs) |  |  | AggregateIntrinsic Value | 
|Outstanding at October 1, 2010 |  |        | 26,812,486 |   |                            | $ | 0.57 |                                    |  |  | 7.64                     |  |  | $ | 17,409,103 | 
|Granted                        |  |        | 1,250,000  |   |                            |   | 0.87 |                                    |  |  |                          |  |  |   |            | 
|Exercised                      |  |        | (100,000   | ) |                            |   | 0.06 |                                    |  |  |                          |  |  |   |            | 
|Cancelled                      |  |        | (150,000   | ) |                            |   | 1.21 |                                    |  |  |                          |  |  |   |            | 
|Outstanding at March 31, 2011  |  |        | 27,812,486 |   |                            |   | 0.58 |                                    |  |  | 7.68                     |  |  |   | 3,349,312  | 
|                               |  |        |            |  
|Exercisable at March 31, 2011  |  |        | 11,539,967 |   |                            | $ | 0.20 |                                    |  |  | 6.46                     |  |  | $ | 2,249,202  | 



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BIOVEST INTERNATIONAL, INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



11. Stock based compensation (continued):



Non-vested employee stock options:



|                              |  |        |            |   |                                   |   |      | 
|----------------------------- |  | ------ | ---------- | - | --------------------------------- | - | ---- | 
|                              |  | Shares |            |   | Weighted Ave Grant-DateFair Value |  
|Non-vested at October 1, 2010 |  |        | 20,213,333 |   |                                   | $ | 0.34 | 
|Granted                       |  |        | 1,250,000  |   |                                   |   | 0.87 | 
|Vested                        |  |        | (5,190,814 | ) |                                   |   | 0.13 | 
|Cancelled                     |  |        |           |   |                                   |   |     | 
|Non-vested at March 31, 2011  |  |        | 16,272,519 |   |                                   | $ | 0.45 | 

For the six months ended
March 31, 2011, approximately 5.2 million option shares previously issued to the Companys employees became vested as a result of the Companys exit from reorganization, causing the recognition of approximately $6.3 million in
share based compensation expense. Compensation expense in the amount of approximately $1.4 million will be recognized over the next two years as a result of the vesting of shares currently outstanding.

Common stock warrants outstanding and exercisable as of March 31, 2011 are as follows:



|                               |  |        |             |   |                       |   |      | 
|------------------------------ |  | ------ | ----------- | - | --------------------- | - | ---- | 
|                               |  | Shares |             |   | WeightedAverage Price |  
|Outstanding at October 1, 2010 |  |        | 31,220,405  |   |                       | $ | 0.35 | 
|Issued                         |  |        | 11,276,990  |   |                       |   | 1.10 | 
|Exercised                      |  |        | (1,076,930  | ) |                       |   | 0.01 | 
|Cancelled                      |  |        | (14,386,983 | ) |                       |   | 0.04 | 
|                               |  |       
|Outstanding at March 31, 2011  |  |        | 27,033,482  |   |                       |   | 0.84 | 
|                               |  |       
|Exercisable at March 31, 2011  |  |        | 26,433,482  |   |                       | $ | 0.81 | 

Termination of Warrants and
Issuance of Shares:

On the Effective Date, all of the following warrants were terminated and cancelled:



| |  |  | the common stock purchase warrant dated March 31, 2006, issued by the Company to Laurus, for the original purchase of up to 18,087,889 shares of
the Companys common stock at an exercise price of $0.01 per share. As of Plan Effective Date, 13,371,358 remained outstanding and were thus terminated pursuant to the Plan;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the common stock purchase warrant dated September 22, 2008, issued by the Company to Valens U.S., for the purchase of up to 1,015,625 shares of
the Companys common stock at an exercise price of $0.40 per share; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In consideration for the cancellation of the
Laurus/Valens Warrants, on the Effective Date, Laurus/Valens received 14,834,782 shares of the Companys common stock, resulting in the recognition of a $1.1 million loss on reorganization on the Companys statement of operations for
the six months ended March 31, 2011. The shares were issued pursuant to Section 1145 of the U.S. Bankruptcy Code and do not have any legend restricting the sale thereof under federal securities laws, but the transfer thereof is subject to
certain restrictions and conditions set forth in the Plan.

12. Segment information:

The Company operates in three identifiable industry segments. The Companys cell culture products and services segment is engaged
in the production and contract manufacturing of biologic drugs and cell production for research institutions worldwide. The instruments and disposables segment is engaged in the development, manufacture and marketing of patented cell culture
systems, equipment and consumable parts to pharmaceutical, diagnostic and biotechnology companies, as well as leading research institutions worldwide. The therapeutic vaccine segment is focused on developing BiovaxID®, and has received a federal grant in the amount of approximately $0.244 million under the Qualified Therapeutic
Discovery Project, as described earlier.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



12. Segment information (continued):



The Companys facilities expenses and other assets are not distinguished among the identifiable
segments. Revenue and cost of sales information about the Companys segments are as follows:



|                            |  |                              |           |   |                            |   |           |      |  |   |           |   |  |   |           |  
|--------------------------- |  | ---------------------------- | --------- | - | -------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                            |  | Three Months ended March 31, |           |   | Six Months ended March 31, |  
|                            |  | 2011                         |           |   | 2010                       |   |           | 2011 |  |   | 2010      |  
|                            |  |                              |           |  
|Revenues                    |  |                              |           |   |                            |   |           |      |  |   |           |   |  |   |           |  
|                            |  |                              |           |  
|Instruments and Disposables |  | $                            | 844,000   |   |                            | $ | 1,041,000 |      |  | $ | 1,151,000 |   |  | $ | 1,957,000 |  
|Cell Culture Services       |  |                              | 377,000   |   |                            |   | 200,000   |      |  |   | 662,000   |   |  |   | 721,000   |  
|Therapeutic Vaccine         |  |                              |          |   |                            |   |          |      |  |   | 244,000   |   |  |   |          |  
|                            |  |                              |           |   |                            |   |           |      |  |   |           |   |  |   |           |  
|                            |  |                              |           |  
|Total Revenues              |  |                              | 1,221,000 |   |                            |   | 1,241,000 |      |  |   | 2,057,000 |   |  |   | 2,678,000 |  
|                            |  |                              |           |  
|Cost of Sales               |  |                              |           |   |                            |   |           |      |  |   |           |   |  |   |           |  
|Instruments and Disposables |  |                              | 406,000   |   |                            |   | 456,000   |      |  |   | 723,000   |   |  |   | 868,000   |  
|Cell Culture Services       |  |                              | 250,000   |   |                            |   | 279,000   |      |  |   | 486,000   |   |  |   | 499,000   |  
|                            |  |                              |           |   |                            |   |           |      |  |   |           |   |  |   |           |  
|                            |  |                              |           |  
|Total Cost of Sales         |  |                              | 656,000   |   |                            |   | 735,000   |      |  |   | 1,209,000 |   |  |   | 1,367,000 |  
|                            |  |                              |           |  
|Gross Margin ($)            |  | $                            | 565,000   |   |                            | $ | 506,000   |      |  | $ | 848,000   |   |  | $ | 1,311,000 |  
|Gross Margin (%)            |  |                              | 46        | % |                            |   | 41        | %    |  |   | 41        | % |  |   | 49        | %

13. Commitments and contingencies:

Legal proceedings:

Bankruptcy proceedings:

On
November 10, 2008, the Company filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code (Chapter 11) in the U.S. Bankruptcy Court for the Middle District of Florida, Tampa Division
(the Bankruptcy Court). During the pendency of the Chapter 11 proceedings, the Company operated its business as a debtor-in-possession in accordance with the provisions of Chapter 11 and subject to the jurisdiction of the Bankruptcy
Court. On August 16, 2010, the Company filed its First Amended Joint Plan of Reorganization, and, on October 25, 2010, the Company filed the First Modification to the First Amended Joint Plan of Reorganization (collectively and as amended
and supplemented, the Plan). On October 27, 2010, the Bankruptcy Court held a confirmation hearing and confirmed the Plan, and, on November 2, 2010, the Bankruptcy Court entered an Order Confirming Debtors First Amended
Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (the Confirmation Order), which approved and confirmed the Plan, as modified by the Confirmation Order. The Company emerged from Chapter 11 protection, and the Plan
became effective, on November 17, 2010 (the Effective Date).

Notwithstanding the effectiveness of the Plan, the Bankruptcy
Court retains jurisdiction to adjudicate any remaining issues regarding, inter alia, the validity, amount, and method of payment of claims filed in connection with our Chapter 11 proceeding. Accordingly, the Company anticipates that there may
be ongoing proceedings before the Bankruptcy Court to resolve any filed objections or disputes as to claims filed in the Companys Chapter 11 proceeding.

Other proceedings:

On August 4, 2008, the Company was served with a summons and
complaint filed in California Superior Court on behalf of Clinstar LLC for breach of contract for non-payment of certain fees for clinical trial studies and pass-through expenses in the amount of $0.385 million. The Company intends to seek to
dismiss this litigation and plan to defend these claims vigorously. Upon the filing of the Companys Chapter 11 petition on November 10, 2008, this litigation was automatically stayed pursuant to provisions of federal bankruptcy law. The
Company anticipates that the claims involved in this litigation will be contested and resolved by the Bankruptcy Court as part of an objection to claim which the Company expects to file shortly.

Except for the foregoing, the Company is not party to any material legal proceedings, and management is not aware of any threatened legal proceedings
that could cause a material adverse impact on the Companys business, assets, or results of operations.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



13. Commitments and contingencies (continued):



Facility leases:

On December 2, 2010, the Company entered into a lease agreement (the Lease) for its 33,000 square foot facility in Minneapolis, Minnesota, which is used for offices, a laboratory,
manufacturing, and warehousing areas to support the production of perfusion cell culture equipment and contract cell culture services. The Lease has a ten-year term, also capitalizes certain improvements to the Minneapolis facility, being financed
and performed principally by the Companys landlord as well as through government grant loans from city and state agencies in Minnesota. These improvements, which began in December 2010, will include the construction of a GMP vaccine
manufacturing space within the existing Minneapolis facility. The Company anticipates that its facilities will meet its needs during fiscal 2011. The Company anticipates that as its development of BiovaxID advances and as the Company prepares for
the future commercialization of its products, its facilities requirements will increase.

The Company shares office space with the
Companys majority shareholder, Accentia, and utilizes the space as the Companys principal executive and administrative offices. Accentia leases approximately 7,400 square feet of office space in Tampa, Florida. The lease expires on
September 30, 2011.

Cooperative Research and Development Agreement:

In September 2001, the Company entered into a definitive Cooperative Research and Development Agreement (CRADA) with the NCI for the development and ultimate commercialization of
patient-specific vaccines for the treatment of non-Hodgkins low-grade follicular lymphoma. The terms of the CRADA, as amended, included, among other things, a requirement to pay $0.5 million quarterly to NCI for expenses incurred in connection
with the ongoing Phase 3 clinical trials. Since the transfer to the Company of the investigational new drug application for development of this vaccine, which occurred in April 2004, these payments to the NCI have been reduced to a small fraction of
this original obligation (approximately $0.2 million per year). On September 25, 2006, the Company provided written notice to the NCI in accordance with the terms of the CRADA to terminate the CRADA at the end of the sixty day notice
period. Under the terms of the CRADA, the Company is obligated to continue to provide vaccine to the NCI at no charge for purposes of the NCIs studies that are within the scope of the CRADA, if the Company were to abandon work on the vaccine.

Food and Drug Administration:

The FDA has extensive regulatory authority over biopharmaceutical products (drugs and biological products), manufacturing protocols and procedures and the
facilities in which mammalian proteins will be manufactured. Any new bioproduct intended for use in humans (including, to a somewhat lesser degree, in vivo biodiagnostic products), is subject to rigorous testing requirements imposed by the FDA with
respect to product efficacy and safety, possible toxicity and side effects. FDA approval for the use of new bioproducts (which can never be assured) requires several rounds of extensive preclinical testing and clinical investigations conducted by
the sponsoring pharmaceutical company prior to sale and use of the product. At each stage, the approvals granted by the FDA include the manufacturing process utilized to produce the product. Accordingly, the Companys cell culture systems used
for the production of therapeutic or biotherapeutic products are subject to significant regulation by the FDA under the Federal Food, Drug and Cosmetic Act, as amended (the FD&C Act).

Product liability:

The contract
production services the Company offers for therapeutic products exposes an inherent risk of liability as the proteins or other substances manufactured, at the request and to the specifications of customers, could foreseeably cause adverse effects.
The Company obtains agreements from contract production customers indemnifying and defending the Company from any potential liability arising from such risk. There can be no assurance, however, that the Company will be successful in obtaining such
agreements in the future or that such indemnification agreements will adequately protect the Company against potential claims relating to such contract production services. The Company may also be exposed to potential product liability claims by
users of its products. A successful partial or completely uninsured claim against the Company could have a material adverse effect on the Companys operations.



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BIOVEST INTERNATIONAL, INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



13. Commitments and contingencies (continued):



Stanford University Agreement:

In September 2004, the Company entered into an agreement with Stanford University (Stanford) allowing worldwide rights to use two proprietary hybridoma cell lines that are used in the
production of BiovaxID. Under the agreement with Stanford, the Company is obligated to pay an annual maintenance fee of $10,000. The agreement also provides that the Company pay Stanford a running royalty of the higher of $50.00 per patient or 0.05%
of revenues received by the Company for each BiovaxID patient treated using this cell line upon approval of BiovaxID. This running royalty will be creditable against the annual maintenance fee. The Companys agreement with Stanford obligates us
to diligently develop, manufacture, market, and sell BiovaxID and to provide progress reports to Stanford regarding these activities. The Company can terminate this agreement at any time upon 30 days prior written notice, and Stanford can
terminate the agreement upon a breach of the agreement by us that remains uncured for 30 days after written notice of the breach from Stanford.

Royalty agreements:

On the Effective
Date, the Company, Accentia, and Laurus/Valens entered into royalty termination agreements, terminating Accentias and reducing Laurus/Valens aggregate royalty interests. As a result of the foregoing agreements, the aggregate royalty
obligation on BiovaxID and the Companys other biologic products was reduced from 35.25% to 6.30%. Additionally, the aggregate royalty obligation on the AutovaxID instrument was reduced from 3.0% to no obligation, including the elimination of
the $7.5 million minimum royalty obligation.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

When you read this section of this Quarterly Report on Form 10-Q, it is important that you also read the financial statements and related notes included elsewhere in this Form 10-Q. This section of
this Quarterly Report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. We use words such as anticipate, estimate,
plan, project, continuing, ongoing, expect, believe, intend, may, will, should, could, and similar expressions to
identify forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the matters discussed under the caption Item 1A. Risk Factors in our
Annual Report on Form 10-K for the fiscal year ended September 30, 2010 and other risks and uncertainties discussed in our other filings with the Securities and Exchange Commission.

Overview

As a result of our collaboration with the National Cancer
Institute (NCI), Biovest International, Inc. (other OTC: BVTI) is developing BiovaxID®
as a personalized therapeutic cancer vaccine for the treatment of non-Hodgkins lymphoma, specifically follicular lymphoma (FL), mantle cell lymphoma (MCL) and potentially other B-cell blood cancers. Both FL and MCL are
generally considered to be incurable with currently approved therapies. These generally fatal diseases arise from the lymphoid tissue and are characterized by an uncontrolled proliferation and spread throughout the body of mature B-cells, which are
a type of white blood cell.

Three clinical trials conducted under our Investigational New Drug Application (IND) have studied
BiovaxID in non-Hodgkins lymphoma. These studies include a Phase 2 clinical trial and a Phase 3 clinical trial in patients with FL, as well as a Phase 2 clinical trial in MCL patients. We believe that these clinical trials have demonstrated
that BiovaxID, which is personalized and autologous (derived from a patients own tumor cells), has an excellent safety profile and is effective in the treatment of these life-threatening diseases.

To support our planned commercialization of BiovaxID, we developed an automated cell culture instrument called AutovaxID. We believe that AutovaxID has significant potential application in the production of a broad range of
patient-specific medicines, such as BiovaxID as well as other monoclonal antibodies. We are collaborating with the U.S. Department of Defense to further develop AutovaxID and to explore potential production of additional vaccines, including vaccines
for viral indications such as influenza. AutovaxID is automated and computer controlled to improve cell production reliability and to maximize cell production. AutovaxID uses a disposable production unit which we anticipate will minimize the need
for Federal Food and Drug Administration (FDA) required clean rooms in the production process and provides for robust and dependable manufacturing while complying with the industry current good manufacturing practices
(cGMP) standards. AutovaxID has a small footprint and supports scalable production.

We also manufacture instruments and
disposables used in the hollow-fiber production of cell culture products. Our hollow-fiber cell culture products and instruments are used by biopharmaceutical and biotech companies, medical schools, universities, research facilities, hospitals and
public and private laboratories. We also produce mammalian and insect cells, monoclonal antibodies, recombinant and secreted proteins and other cell culture products using our unique capability, expertise and proprietary advancements in the cell
production process known as hollow fiber perfusion.

Our business consists of three primary business segments: development of BiovaxID and
potentially other B-cell blood cancer vaccines; the manufacture and sale of AutovaxID and other instruments and consumables; and commercial production of cell culture products and services.

Corporate Overview

We were incorporated in Minnesota in 1981, under the name Endotronics,
Inc. In 1993, our name was changed to Cellex Biosciences, Inc. In 2001, we changed our corporate name to Biovest International, Inc. and changed our state of incorporation from Minnesota to Delaware.

In April 2003, we entered into an Investment Agreement with Accentia Biopharmaceuticals, Inc. (Accentia). As a result of this agreement, in
June 2003, we became a subsidiary of Accentia through the sale of shares of our authorized but un-issued common and preferred stock then representing approximately 81% of our equity outstanding immediately after the investment. The aggregate
investment commitment received from Accentia was $20 million. We continued to be a reporting company under Section 12(g) of the Securities Exchange Act of 1934 following the investment of Accentia.



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Reorganization

On November 10, 2008, we, and our wholly-owned subsidiaries filed voluntary petitions for reorganization under Chapter 11. Our reorganization case was jointly administered with the reorganization
case of our parent company, Accentia under Case No. 8:08-bk-17795-KRM. On August 16, 2010, we filed our First Amended Joint Plan of Reorganization, and, on October 25, 2010, we filed the First Modification to the First Amended Joint
Plan of Reorganization (collectively and as amended and supplemented, the Plan). On October 27, 2010, the U.S. Bankruptcy Court for the Middle District of Florida, Tampa Division (the Bankruptcy Court) held a
Confirmation hearing and confirmed the Plan, and, on November 2, 2010, the Bankruptcy Court entered an Order Confirming Debtors First Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code
(the Confirmation Order), which approved and confirmed the Plan, as modified by the Confirmation Order. We emerged from Chapter 11 protection, and the Plan became effective, on November 17, 2010 (the Effective
Date).

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 us to make significant
estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to bad debts, inventories,
intangible assets, contingencies and litigation on an ongoing basis. We base our 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.

Accounting principles generally accepted in the United States generally do not change the manner in which financial statements are prepared while a
company is in Chapter 11. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the
ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization
items in the statement of operations beginning in the quarter ended December 31, 2008. The balance sheet must distinguish prepetition liabilities subject to compromise from both those prepetition liabilities that are not subject to compromise
and post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided by reorganization items
must be disclosed separately in the statement of cash flows. We have segregated those items as outlined above for all reporting periods subsequent to November 10, 2008.

We believe the following critical accounting policies, among others, involve the more significant judgments and estimates used in the preparation of our financial statements:

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

Contract costs related to cell culture production include all direct material, subcontract and labor costs and those indirect costs related to contract
performance, such as indirect labor, insurance, supplies and tools. We believe that actual costs incurred in contract cell production services is the best indicator of the performance of the contractual obligations, because the costs relate
primarily to the amount of labor incurred to perform such services. The deliverables inherent in each of our cell culture production contracts are not output driven, but rather are driven by a pre-determined production run. The duration of our cell
culture production contracts range typically from 2 to 14 months.

We maintain provisions for estimated losses resulting from the inability of
our customers to make required payments. If the condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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

In assessing the recoverability of our amounts recorded as intangible 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, we may be required to record impairment charges.



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We account for stock-based compensation based on Accounting Standards Codification (ASC) Topic
718  Stock Compensation, which requires expensing of stock options and other share-based payments based on the fair value of each option awarded. The fair value of each option is estimated on the date of grant using the Black-Scholes valuation
model. This model requires management to estimate the expected volatility, expected dividends, and expected term as inputs to the valuation model.

The consolidated financial statements represent the consolidation of wholly-owned companies and interests in joint ventures where we have had a controlling financial interest or have been determined to be
the primary beneficiary under ASC Topic 810  Consolidation. All significant inter-company balances and transactions have been eliminated.

We do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, we and our consolidated
subsidiaries have entered into certain other financial instruments and contracts, such as debt financing arrangements and freestanding warrants with features that are either (i) not afforded equity classification, (ii) embody risks not
clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. These instruments are required to be carried as derivative liabilities, at fair value.

In selecting the appropriate technique(s) to measure the fair values of our derivative financial instruments, management considers, among other factors,
the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, we generally use the Black-Scholes-Merton option valuation technique
because it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments. For forward contracts that contingently require net-cash settlement as the principal
means of settlement, management projects and discounts future cash flows applying probability-weightage to multiple possible outcomes. Estimating fair values of derivative financial instruments requires the development of significant and subjective
estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in our trading market
price which has high-historical volatility. Since derivative financial instruments classified as liabilities are initially and subsequently carried at fair value, our income will reflect the volatility in these estimate and assumption changes.

Results of Operations

Revenues. Total revenues for the six months ended March 31, 2011 were $2.1 million, compared to revenues of $2.7 million
for the six months ended March 31, 2010. Sales from both our instrumentation and cell culture contract segments have decreased year over year. Prior year instrument sales included approximately $0.6 million from a total $1.5 million
contract with the U.S. Department of Defense Naval Health Research Center (NHRC) to supply AutovaxID bioreactors to evaluate the instruments suitability to produce cell-culture based anti-viral vaccines. The current
fiscal year includes revenues of $0.3 million on this contract and the contract has been closed with the final milestone having been completed in January 2011.

On October 31, 2010, we received notice from the U.S. Internal Revenue Service (IRS) that we were approved to receive a Federal grant in the amount of approximately $0.24 million under
the Qualifying Therapeutic Discovery Project. The Qualifying Therapeutic Discovery Project tax credit is provided under new section 48D of the Internal Revenue Code (IRC), enacted as part of the Patient Protection and Affordable Care Act
of 2010. The credit is a tax benefit targeted to therapeutic discovery projects that show a reasonable potential to result in new therapies to treat areas of unmet medical need or prevent, detect or treat chronic or acute diseases and conditions;
reduce the long-term growth of health care costs in the U.S., or significantly advance the goal of curing cancer within 30 years. Allocation of the credit will also take into consideration which projects show the greatest potential to create and
sustain high-quality, high-paying U.S. jobs and to advance U.S. competitiveness in life, biological and medical sciences. The funds were awarded to support the advancement of BiovaxID.

Gross Margin. The overall gross margin as a percentage of sales for the six months ended March 31, 2011 decreased from 49% to 41% when compared to the six months ended
March 31, 2010. While revenues have decreased year over year, as discussed above, there was not a corresponding decrease in cost of sales as a relatively high percentage of costs are of a fixed nature.

Operating Expenses. Research and development expenses have increased by $0.2 million for the six months ended March 31, 2011 compared
to the same period in fiscal 2010. This is primarily attributable to an increase in wages and laboratory supplies as we continue to analyze the available data from our clinical trials and plan to seek accelerated and/or conditional approval with the
FDA and European Medicines Agency (EMEA). We have hired two additional employees at our Minneapolis facility to support this analysis.

General and administrative expenses increased from $1.1 million to $7.7 million when compared to the same six months of the previous fiscal year. Upon emerging from reorganization, a number of incentive
stock options previously issued to our employees and directors became vested, resulting in a non-cash charge of approximately $6.3 million to general and administrative expense for the six months ending March 31, 2011.



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Other Income (Expense). Other expense for the six months ended March 31, 2011, includes
contractual interest charges and amortization of discounts regarding the Laurus/Valens Term A and Term B Notes, the Corps Real Note, the Convertible Notes Financing, and other long term notes (as defined below) issued to our unsecured creditors as a
result of our Plan. As a result of restructuring our debt to a combination of long term notes and equity, interest expense decreased by $1.2 million or 30% from the six months ended March 31, 2010. The structure of our new debt arrangements
resulting from our Plan is discussed in further detail under Liquidity and Capital Resources below.

Other expense for the first
six months of fiscal 2011 and 2010 included a loss of $1.4 million and $19.3 million, respectively, on derivative liabilities. The previous years loss results from conversion features associated with our then outstanding debt, as well as
outstanding warrants which contained contingent exercise provisions. The value of these liabilities varied directly with the trading price of our outstanding common stock. As a result of our Plan, these conversion features no longer exist, and the
contingent exercise provisions associated with the warrants have been eliminated.

In connection with our emergence from bankruptcy, we
entered into a $7.0 million exit financing with an accredited investor group using the services of Roth Capital Partners, LLC as placement agent. This exit financing consists of a two year secured note which is convertible into shares of our common
stock, as well as warrants which have contingent exercise provisions. The conversion features on the exit financing have been recorded as a derivative liability which we are required to record at fair value resulting in the current year loss on
derivative liabilities.

Reorganization Items.

Gain on Reorganization:For the six months ended March 31, 2011, we recognized a gain of $0.1 million resulting from the settlement of our prepetition claims through our Chapter 11
proceedings. Pursuant to the Plan, holders of existing voting shares immediately before confirmation received more than 50 percent of the voting shares of the emerging entity, thus we did not adopt fresh-start reporting upon emergence from Chapter
11. We instead followed the guidance as described in ASC 852-45-29 for entities which do not qualify for fresh-start reporting. Liabilities compromised by our Plan were stated at present values of amounts to be paid, and forgiveness of debt will be
reported as an extinguishment of debt resulting in the gain on reorganization. See Liquidity and Capital Resource for details of our Plan.

Professional Fees:$0.25 million and $0.24 million were incurred for the quarters ending March 31, 2011 and 2010, respectively, for legal fees as a result of our Chapter 11 proceedings.

Provision for indemnity agreements: Certain of our debts were guaranteed by individuals affiliated with us or our majority
shareholder, Accentia. We agreed to indemnify these guarantors should their guarantees be called by the lenders. In December 2008, the lenders called in the guarantees resulting in an unsecured claim against us for approximately
7.6 million shares of our common stock. We initially recorded a provision for this claim based upon the fair value of the 7.6 million shares asserted by the guarantors. In February 2010, we reached an agreement with the guarantors whereby
their indemnities would be valued using a price of $0.24 per share, which represents the closing price of our common stock on November 9, 2008, the day prior to filing our petition for reorganization, and represented the amount that would be
allowed as an unsecured claim of the guarantors in our Chapter 11 proceedings (approximately $1.8 million). On the Effective Date, the guarantors were issued 1.04 million shares of our common stock in full satisfaction of the aggregate $1.8
million unsecured claim.

Non-controlling interest in earnings from variable interest entities.

For the six months ended March 31, 2010, our statement of operations included a $0.2 million net loss attributable to non-controlling interests in
the entities resulting from the consolidation of a number of variable interests formed as a result of the New Market Tax Credit transactions (as defined below). As a result of an order approved by the Bankruptcy Court on December 1, 2010, all
obligations to all parties to the New Market Tax Credit transactions were terminated. As a result, the variable interest ceased to be included in our consolidated financial statements as of the Effective Date of our Plan.

Liquidity and Capital Resources

At March 31, 2011, we had an accumulated deficit of approximately $157.4 million and working capital of approximately $2.3 million. Working capital does not include those liabilities which are
subject to compromise through our Chapter 11 proceedings, the ultimate outcome of which is expected to be determined by the Bankruptcy Court within the next twelve months. Our goal is to meet our cash requirements through proceeds from our
convertible note transaction, debtor-in-possession line of credit, cell culture and instrument manufacturing activities, and short-term borrowings. We intend to seek additional public or private equity investment, short or long term debt financing
or strategic relationships such as investments or licenses. Our ability to continue present operations and to continue our detailed analysis of our clinical trial results is dependent upon our ability to obtain significant external funding, which
raises substantial doubt about our ability to continue as a going concern. The need for funds is expected to grow as we continue our efforts to commercialize both BiovaxID® and AutovaxID.



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Additional sources of funding have not been established; however, additional financing is currently being
sought by us from a number of sources, including through the sale of equity or debt securities, strategic collaborations, recognized research funding programs, and domestic and/or foreign licensing of our vaccine. Management is currently in the
process of exploring various financing alternatives. There can be no assurance that we will be successful in securing such financing at acceptable terms, if at all. If adequate funds are not available from the foregoing sources, or if we determine
it to otherwise be in our best interest, we may consider additional strategic financing options, including sales of assets, or we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or
curtail some or all of our commercialization efforts.

Chapter 11 Plan of Reorganization

On November 17, 2010 (the Effective Date), we successfully completed our reorganization and formally exited Chapter 11 as a fully
restructured organization. Through the provisions of the Plan, we were able to restructure the majority of our debt into a combination of long-term notes and equity, while preserving common shares held by existing stockholders. As further described
below in connection with the Plan, we entered into an exit financing to provide us with working capital for general corporate and research and development activities which includes the payment of our near-term obligations under the Plan.

Corps Real, LLC

On the Effective Date,
we executed and delivered in favor of Corps Real, LLC, an Illinois limited liability company (Corps Real), the members of which are directors of our Company, or are affiliated with directors of our Company, a secured
convertible promissory note (the DIP Lender Plan Note) in an original principal amount of $2,291,560. The DIP Lender Plan Note amends and restates the $3.0 million secured line of credit promissory note dated December 22, 2008,
which was previously executed by us in favor of Corps Real. The DIP Lender Plan Note matures on November 17, 2012, and all principal and accrued but unpaid interest is due on such date. Interest accrues and is payable on the outstanding
principal amount of the DIP Lender Plan Note at a fixed rate of sixteen percent (16%) per annum, with interest in the amount of ten percent (10%) to be paid monthly and interest in the amount of six percent (6%) to accrue and be paid
on the maturity date. We may prepay the DIP Lender Plan Note in full, without penalty, at any time, and Corps Real may convert all or a portion of the outstanding balance of the DIP Lender Plan Note into shares of our common stock at a conversion
rate of $0.75 per share of our common stock. The DIP Lender Plan Note is secured by a first priority lien on all of our assets. As of March 31, 2011, the outstanding principal amount of the DIP Lender Plan Note, as issued, on the Effective Date
has remained unchanged.

Exit Financing

On October 19, 2010, we completed a financing as part of our Plan (the Exit Financing). Pursuant to the Exit Financing, we issued an aggregate of $7.0 million in principal amount of
Debtor-In-Possession Secured Convertible Notes (the Initial Notes) and warrants to purchase shares of our common stock (the Initial Warrants) to a total of twelve (12) accredited investors (the Buyers).
Pursuant to the Exit Financing, we issued two separate types of Initial Warrants to the Buyers, Series A Warrants (the Initial Series A Warrants) and Series B Warrants (the Initial Series B Warrants).

On the Effective Date: (a) the Initial Notes were exchanged pursuant to the terms of the Plan for new unsecured notes (the Exchange
Notes) in the aggregate principal amount of $7.04 million, (b) the Initial Series A Warrants were exchanged pursuant to the terms of the Plan for new warrants to purchase a like number of shares of our common stock (the Series
A Exchange Warrants), and (c) the Initial Series B Warrants were exchanged pursuant to the terms of the Plan for new warrants to purchase a like number of shares of our common stock (the Series B Exchange Warrants). The
following are the material terms and conditions of the Exchange Notes:



| |  |  | the Exchange Notes mature on November 17, 2012, and all principal and accrued but unpaid interest is due on such date;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | interest accrues and is payable on the outstanding principal amount of the Exchange Notes at a fixed rate of seven percent (7%) per annum (with a
fifteen percent (15%) per annum default rate), and is payable monthly in arrears. The first interest payment was paid on December 1, 2010;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | interest payments are payable at our election in either cash or, subject to certain specified conditions, in shares of our common stock;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may from time to time, subject to certain conditions, redeem all or any portion of the outstanding principal amount of the Exchange Notes for an
amount, in cash, equal to 110% of the sum of the principal amount being redeemed and certain make-whole interest payments;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the holders of the Exchange Notes may convert all or a portion of the outstanding balance of the Exchange Notes into shares of our common stock at a
conversion rate of $0.91 per share, subject to anti-dilution adjustments in certain circumstances; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | in the event that the average of the daily volume weighted average price of our common stock is at least 150% of the then-effective conversion price
for any ten (10) consecutive trading days, we, at our option, may upon written notice to the holders of the Exchange Notes, convert the then outstanding balance of the Exchange Notes into shares of our common stock at the conversion price then
in effect under the Exchange Notes.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following are the material terms and conditions of the Series A Exchange Warrants:



| |  |  | the Series A Exchange Warrants give the Buyers the right to purchase an aggregate of 8,733,096 shares of our common stock (the Series A
Warrant Shares);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Series A Exchange Warrants have an exercise price of $1.20 per share and expire on November 17, 2017; and
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | if we issue or sell any options or convertible securities after the issuance of the Series A Exchange Warrants that are convertible into or
exchangeable or exercisable for shares of common stock at a price which varies or may vary with the market price of the shares of our common stock, including by way of one or more reset(s) to a fixed price, the Buyers have the right to substitute
any of the applicable variable price formulation for the exercise price upon exercise of the warrants held.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On
December 22, 2010, the Series B Exchange Warrants were exercised by a cashless exercise and 1,075,622 shares of our common stock were issued to the Buyers.

As of March 31, 2011, a total of $5.1 million in principal on the Exchange Notes had been converted into shares of our common stock, resulting in the issuance to the Buyers of 6.0 million shares
of our common stock. The remaining principal balance outstanding on the Exchange Notes is $1.9 million as of March 31, 2011.

Laurus/Valens (Class 2)

On the
Effective Date, we issued two new notes (the Laurus/Valens Term A Notes and Laurus/Valens Term B Notes) in the aggregate original principal amount of $29.06 million to Laurus Master Fund, Ltd. (in liquidation)
(Laurus), PSource Structured Debt Limited (PSource), Valens Offshore SPV I, Ltd., Valens Offshore SPV II, Corp., Valens U.S. SPV I, LLC, (collectively, Valens) and LV Administrative Services, Inc., as
administrative and collateral agent for Laurus, PSource, and Valens (LV and together with Laurus, PSource, Valens, and each of their respective affiliates, Laurus/Valens) in compromise, and satisfaction of secured claims
prior to the Effective Date. The following are the material terms and conditions of the Laurus/Valens Term A Notes:



| |  |  | the original principal amount of the Laurus/Valens Term A Notes was $24.9 million;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the Laurus/Valens Term A Notes mature on November 17, 2012;
| | - |  | -----------------------------------------------------------



| |  |  | interest accrues at the rate of eight percent (8%) per annum (with a twelve percent (12%) per annum default rate), and is payable at the time
of any principal payment or prepayment of principal;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may prepay the Laurus/Valens Term A Notes, without penalty, at any time; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | we are required to make mandatory prepayments under the Laurus/Valens Term A Notes as follows:
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | a prepayment equal to thirty percent (30%) of the net proceeds (i.e., the gross proceeds received less any investment banking or similar fees and
commissions and legal costs and expenses incurred by us) of certain capital raising transactions (with certain exclusions), but only up to the amount of the then outstanding principal and accrued interest under the Laurus/Valens Term A Notes;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | from any intercompany funding by Accentia (with certain exceptions and conditions); and
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | a prepayment equal to fifty percent (50%) of the positive net cash flow for each fiscal quarter after the Effective Date, less the amount of
certain capital expenditures on certain biopharmaceutical products made during such fiscal quarter or during any prior fiscal quarter ending after November 17, 2010.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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On November 18, 2010, we prepaid the Laurus/Valens Term A Notes in an amount equal to $1.4 million
from the proceeds received from the Exit Financing. As of March 31, 2011, our indebtedness under the Laurus/Valens Term A Notes was $23.5 million.

The following are the material terms and conditions of the Laurus/Valens Term B Notes:



| |  |  | the original principal amount of the Laurus/Valens Term B Notes was $4.16 million;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the Laurus/Valens Term B Notes mature on November 17, 2013;
| | - |  | -----------------------------------------------------------



| |  |  | interest accrues at the rate of eight percent (8%) per annum (with a twelve percent (12%) per annum default rate), and is payable at the time
of any principal payment or prepayment of principal;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may prepay the Laurus/Valens Term B Notes, without penalty, at any time; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | provided that the Laurus/Valens Term A Notes have been paid in full, we are required to make mandatory prepayments under the Laurus/Valens Term B Notes
from any intercompany funding by Accentia (with certain exceptions and conditions), but only up to the amount of the outstanding principal and accrued interest under the Laurus/Valens Term B Notes.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of March 31, 2011, the outstanding principal amounts of the Laurus/Valens Term B Notes, as issued on the Effective Date, have remained unchanged.

With the prior written consent of Laurus/Valens, we may convert all or any portion of the outstanding principal and accrued interest under
either the Laurus/Valens Term A Notes or the Laurus/Valens Term B Notes into shares of our common stock. The number of shares of our common stock issuable on such a conversion (the Laurus/Valens Conversion Shares) is equal to (a) an
amount equal to the aggregate portion of the principal and accrued and unpaid interest thereon outstanding under the applicable Laurus/Valens Term A Notes or the Laurus/Valens Term B Notes being converted, divided by (b) ninety percent
(90%) of the average closing price publicly reported (or reported by Pink Sheets, LLC) for our common stock for the ten (10) trading days immediately preceding the date of the notice of conversion.

The Laurus/Valens Term A Notes and the Laurus/Valens Term B Notes are secured by a first lien on all of our assets, including the assets of our
subsidiaries, junior only to the lien granted to Corps Real and to certain permitted liens. The Laurus/Valens Term A Notes and the Laurus/Valens Term B Notes will also be guaranteed by Accentia (the Accentia Guaranty) up to a maximum
amount of $4,991,360. The Accentia Guaranty will be secured by a pledge by Accentia of 20,115,818 shares of our common stock owned by Accentia and by the assets of Accentias subsidiary, Analytica International, Inc.

The Laurus/Valens Term A Notes and Laurus/Valens B Notes have replaced the following pre-petition claim of Laurus/Valens:



| |  |  | the $7.799 million note payable to Laurus originated in March 2006;
| | - |  | -------------------------------------------------------------------



| |  |  | the $0.250 million note payable to Valens Offshore SPV II, Corp originated in October 2007;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | the $0.245 million note payable to Valens U.S. SPV I, LLC originated in October 2007;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the $3.6 million note payable to Valens Offshore SPV II, Corp originated in December 2007;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | the $4.9 million note payable to Valens U.S. SPV I, LLC originated in December 2007;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the $7.5 million minimum royalty due on sales of AutovaxID instrumentation originated in April 2007; and
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the $4.4 million loan modification fee, originated in July 2008, in consideration for modifying the terms of all the then outstanding debt due to
Laurus/Valens.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

Class 8, Unsecured Option A Obligations

On the Effective Date, we became obligated to our unsecured creditors in the principal amount of approximately $2.7 million in cash together with interest at five percent (5%) per annum to be paid in
one installment on March 27, 2014 (the Option A Obligations). These unsecured claims include, but are not limited to the Pulaski Bank notes, the Southwest Bank note, and the related guarantor indemnities. As of March 31, 2011,
the outstanding principal amounts of the Option A Obligations, as issued on the Effective Date, have remained unchanged.



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Class 8, Unsecured Option C Notes

On the Effective Date, we became obligated to certain of our unsecured creditors in the principal amount of approximately $2.0 million. Each such unsecured creditor received an amount equal to 100%
of such unsecured creditors allowed Class 8 unsecured claim (including post-petition interest under the Plan at the rate of three percent (3%) per annum) in a combination of debt and equity resulting in the issuance of a total of
$1.8 million in new notes (the Option C Notes), as well as, 0.2 million shares of our common stock, using an effective conversion rate equal to $1.66 per share. The Option C Notes bear interest at seven percent (7%) and are
convertible into our common stock in seven quarterly installments beginning on February 17, 2011 as follows:



| |  |  | provided that the average of the volume weighted average prices for our common stock for the ten consecutive trading days immediately preceding each
quarterly conversion date (Ten Day VWAP) is at least $1.00 per share, one-eighth (1/8th) of
the Option C Notes plus accrued interest will be automatically converted into shares of our common stock at a conversion rate equal to the Ten Day VWAP;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if the Ten Day VWAP is less than $1.00 per share, the Option C Notes will not automatically convert into shares of our common stock, but will instead
become payable at maturity (August 17, 2012), unless an Option C Note holder, elects to convert one-eighth
(1/8th) of its Option C Notes plus accrued interest into shares of our
common stock at a conversion rate equal to $1.00 per share;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any portion of the Option C Notes and any Option C interest that are outstanding at maturity (August 17, 2012) will be due and payable in full, at our
election, in either cash or in shares of our common stock at a conversion rate equal to the Ten Day VWAP;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if, at any time prior to August 17, 2012, the Ten Day VWAP is at least $1.50 per share, an Option C Note holder, at its option, may convert any or
all of its Option C Notes plus the then accrued and unpaid interest into shares of our common stock at a conversion rate equal to the Ten Day VWAP used for the initial conversion on the Effective Date ($1.66 per share) and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if, at any time prior to August 17, 2012, the volume weighted average price for our common stock is at least $1.88 per share for thirty
(30) consecutive trading days, at our option, we may require the conversion of the then aggregate outstanding balance of the Option C Notes plus the then accrued and unpaid Option C interest at a conversion rate equal to the Ten Day VWAP used
for the initial conversion on the Effective Date ($1.66 per share).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On February 17, 2011, the Ten Day VWAP of our
stock was less than $1.00 per share. On that date, the Option C Note holder elected to convert one-eighth of the Option C Notes plus accrued interest into shares of our common stock at a conversion rate equal to $1.00 per share, resulting in
the issuance of 391,980 shares of our common stock. As of March 31, 2011, approximately $1.5 million in principal remains outstanding on the Option C Notes.

Accentia (Class 3)

On the Effective Date, the entire pre-petition claim (approximately
$12.0 million plus post-petition interest at a rate of six percent), due from us to Accentia, our majority shareholder, was converted into shares of our common stock at a conversion rate equal to $0.75 per share, resulting in the issuance of
17,925,720 shares of our common stock.

2008 Secured Debenture Holders (Class 4)

On the Effective Date, two holders of our 2008 secured debentures, including one of our directors and an entity affiliated with our CEO/Chairman, elected
to convert their entire outstanding principal balance ($500,000) plus accrued interest into shares of our common stock at a conversion rate equal to $1.66 per share resulting in the issuance of 331,456 shares our of common stock. One additional
holder of the 2008 secured debentures, elected to convert the entire outstanding principal balance of $300,000 plus accrued interest into 550,000 shares of our common stock, issuable in eight quarterly installments of 68,750 shares, with the first
installment issued on November 17, 2010. The final holder of the 2008 secured debentures, Valens U.S. SPV I, LLC, received consideration for their claim in accordance with the Laurus/Valens Term A and Term B Notes (Class 2), as previously
discussed.



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##### Table of Contents

Ronald E. Osman (Class 7)

On the Effective Date, the holder of the May 9, 2008 promissory note (who is one of our directors, Ronald E. Osman) elected to convert the entire outstanding principal balance under the promissory
note (approximately $1.0 million) plus accrued interest into shares of our common stock at a conversion rate equal to $1.66 per share, resulting in the issuance of 608,224 shares of our common stock.

Unsecured Claims (Class 8)  Option B

On the Effective Date, we issued unrestricted shares of our common stock to holders of approximately $3.5 million in principal amount of Class 8 unsecured claims who elected to receive payment in equity
as provided in the Plan. A total of 2.1 million shares of our common stock were issued in payment of these unsecured Option B claims, at an effective conversion rate equal to $1.66 per share.

Equity Interests (Class 12)

On the
Effective Date, each of our common stockholders was deemed to receive one (1) share of reorganized Biovest common stock (the Class 12 Plan Shares) for each share of previously outstanding Biovest common stock held by such
stockholder as of the Effective Date. The Class 12 Plan Shares were deemed issued pursuant to Section 1145 of the Bankruptcy Code and do not have any legend restricting the sale thereof under federal securities laws.

April 2006 NMTC Transaction

We entered
into an agreement in July 2010 (the Worcester Restructuring Agreement) with Telesis CDE Corporation and Telesis CDE Two, LLC (collectively, Telesis), contingent upon submission to and approval by the Bankruptcy Court. The
Worcester Restructuring Agreement effectively terminates all agreements and obligations of all parties pursuant to the New Markets Tax Credit transaction originally closed on April 25, 2006 (the April 2006 NMTC Transaction). In
consideration for the termination, Telesis retained an unsecured claim in our Chapter 11 proceeding in the amount of $0.3 million along with a settlement payment in the amount of $85,000 to defray certain legal and administrative expenses
incurred by Telesis. This Worcester Restructuring Agreement and the compromise of the outstanding claims against us and our affiliates was approved by the Bankruptcy Court in an Order entered on December 1, 2010. As a result, our guaranty,
Accentias guaranty, and all of our subsidiary guaranties and all other obligations to all parties to the April 2006 NMTC Transaction were terminated. We have ceased all activities under the April 2006 NMTC Transaction and we have liquidated
the subsidiaries created specifically to conduct activities under the April 2006 NMTC Transaction.

December 2006 NMTC Transaction

We entered into an agreement in July 2010 (the St. Louis Restructuring Agreement) with St. Louis Development Corporation and
Saint Louis New Markets Tax Credit Fund II, LLC (collectively, SLDC), contingent upon submission to and approval by the Bankruptcy Court. The St. Louis Restructuring Agreement effectively terminates all agreements and obligations of all
parties pursuant to the New Markets Tax Credit transaction originally closed on December 8, 2006 (the December 2006 NMTC Transaction). In consideration for the termination, SLDC retained an unsecured claim in our Chapter 11
proceeding in the amount of $160,000 along with a settlement payment in the amount of $62,000, to defray certain legal and administrative expenses incurred by SLDC. This St. Louis Restructuring Agreement and the compromise of the outstanding claims
against us was approved by the Bankruptcy Court in an Order entered on December 1, 2010. As a result, our guaranty, Accentias guaranty, and all of our subsidiary guaranties and all other obligations to all parties to the December 2006
NMTC Transaction were terminated. We have ceased all activities under the December 2006 NMTC Transaction and we have liquidated the subsidiaries created specifically to conduct activities under the December 2006 NMTC Transaction.

Fluctuations in Operating Results:

Our
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 our 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 us. 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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##### Table of Contents

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Not Applicable



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation
of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief
executive officer (principal executive officer) and our acting chief financial officer (principal financial officer), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our chief executive officer (principal executive officer) and our acting chief financial officer (principal
financial officer) concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that information required to be disclosed in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that
information required to be disclosed by us in the reports we file or submit is accumulated and communicated our management, including our chief executive officer (principal executive officer) and our acting chief financial officer (principal
financial officer), as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial
Reporting

There have been no changes in our internal control over financial reporting identified in connection with this evaluation
that occurred during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

Bankruptcy
proceedings:

On November 10, 2008, we, along with our subsidiaries, filed a voluntary petition for reorganization under Chapter
11 of the United States Bankruptcy Code (Chapter 11) in the U.S. Bankruptcy Court for the Middle District of Florida, Tampa Division (the Bankruptcy Court). During the pendency of the Chapter 11 proceedings, we operated
our business as a debtor-in-possession in accordance with the provisions of Chapter 11 and subject to the jurisdiction of the Bankruptcy Court. On August 16, 2010, we filed our First Amended Joint Plan of Reorganization, and, on
October 25, 2010, we filed the First Modification to the First Amended Joint Plan of Reorganization (collectively and as amended and supplemented, the Plan). On October 27, 2010, the Bankruptcy Court held a confirmation hearing
and confirmed the Plan, and, on November 2, 2010, the Bankruptcy Court entered an Order Confirming Debtors First Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (the Confirmation Order), which
approved and confirmed the Plan, as modified by the Confirmation Order. We emerged from Chapter 11 protection, and the Plan became effective, on November 17, 2010 (the Effective Date).

Notwithstanding the effectiveness of the Plan, the Bankruptcy Court retains jurisdiction to adjudicate any remaining issues regarding, inter alia,
the validity, amount, and method of payment of claims filed in connection with our Chapter 11 proceeding. Accordingly, we anticipate that there may be ongoing proceedings before the Bankruptcy Court to resolve any filed objections or disputes as to
claims filed in the Chapter 11 proceeding.

Other proceedings:

On August 4, 2008, we were served with a summons and complaint filed in California Superior Court on behalf of Clinstar LLC for breach of contract for non-payment of certain fees for clinical trial
studies and pass-through expenses in the amount of $385,000. We intend to seek to dismiss this litigation and plan to defend these claims vigorously. Upon the filing of our Chapter 11 petition on November 10, 2008, this litigation was
automatically stayed pursuant to provisions of federal bankruptcy law. We anticipate that the claims involved in this litigation will be contested and resolved by the Bankruptcy Court as part of an objection to claim which we expect to file shortly.

Except for the foregoing, we are not party to any material legal proceedings, and management is not aware of any threatened legal proceedings
that could cause a material adverse impact on our business, assets, or results of operations.



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##### Table of Contents

|ITEM 1A. | RISK FACTORS
|-------- | ------------

There have been no material
changes from the risk factors disclosed in Item 1A of Part I of our Form 10-K for the year ended September 30, 2010.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

During the period covered by this Quarterly Report on Form 10-Q, we issued the following securities, which were not registered under the Securities Act of 1933, as amended (the Securities
Act):



| | 1. | On January 1, 2011, we issued Incentive Stock Option Award Agreements (Option Awards) to our employees under our 2010 Equity Incentive Plan. The Option
Awards granted an option to purchase as aggregate of 1,150,000 shares of our common stock at an exercise price of $0.92 per share.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | On January 10, 2011, we issued 56,000 shares of our common stock to Alan M. Pearce pursuant to the December 31, 2010 Resignation Settlement between us and
Mr. Pearce. These shares were issued consideration of the settlement of all claims by Mr. Pearce, including but not limited to, claims under or arising out of Mr. Pearces Employment Agreement with us.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | On February 1, 2011, we issued an incentive stock option award agreement (Reardan Option Award) to Dayton Reardan pursuant to the February 1, 2011
Consultant Agreement between us and Mr. Reardan. The Reardan Option Award granted an option to purchase 100,000 shares of our common stock at an exercise price of $0.71 per share.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | During the three months ended March 31, 2011, pursuant to our Plan with an effective date of November 17, 2010 and Section 1145 of the United States
Bankruptcy Code, we issued 1,617,912 shares of our common stock in satisfaction of allowed claims under our Plan, with conversion prices ranging from $0.50 to $1.66 per share.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We claimed exemption from registration under the Securities Act for the sales and issuances of securities in the transactions described in paragraphs 1 and 3 by virtue of Section 4(2) of the
Securities Act and by virtue of Rule 701 promulgated under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation, as provided by Rule 701. Such
sales and issuances did not involve any public offering, were made without general solicitation or advertising, and each purchaser represented its intention to acquire the securities for investment only and not with view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us.

We claimed exemption from registration under the Securities Act for the sale and issuance of securities in the transaction described in paragraph 2 above
by virtue of Section 4(2) of the Securities Act in that such sale and issuance did not involve a public offering. The recipient of the securities represented his intention to acquire the securities for investment only and not with view to or
for sale in connection with any distribution thereof. Appropriate legends were affixed to the share certificates and instruments issued. The recipient had adequate access, through his relationships with us, to information about us.

We claimed exemption from registration under the Securities Act for the issuances of securities in the transactions described in paragraph 4 above by
virtue of Section 1145(a) of the United States Bankruptcy Code in that such issuances were made under our Plan in exchange for claims against, or interests in, our company.

No underwriters were employed in any of the above transactions.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | (Removed and Reserved.)
|------- | -----------------------



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



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##### Table of Contents

|ITEM 6. | EXHIBITS
|------- | --------

The following exhibits are
filed as part of, or are incorporated by reference into, this Quarterly Report on Form 10-Q.



|               |  |                                                                                                                                                  
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Document                                                                                                                          
|               | 
|10.1           |  | Promissory Note, dated November 16, 2010, between City of Coon Rapids, JMS Holdings and Biovest.                                                 
|               | 
|10.2           |  | Mortgage, dated November 16, 2010, between City of Coon Rapids and JMS Holdings.                                                                 
|               | 
|10.3           |  | Agreement for Loan of Minnesota Investment Fund, dated November 16, 2010, between City of Coon Rapids and Biovest.                               
|               | 
|10.4           |  | Security Agreement, dated November 16, 2010, between City of Coon Rapids and Biovest.                                                            
|               | 
|10.5           |  | Promissory Note, dated December 7, 2010, between the Economic Development Authority in and for the City of Coon Rapids, JMS Holdings and Biovest.
|               | 
|10.6           |  | Mortgage, dated December 7, 2010, between the Economic Development Authority in and for the City of Coon Rapids and JMS Holdings.                
|               | 
|10.7           |  | Loan Agreement, dated December 7, 2010, between the Economic Development Authority in and for the City of Coon Rapids and Biovest.               
|               | 
|10.8           |  | Security Agreement, dated December 7, 2010, between the Economic Development Authority in and for the City of Coon Rapids and Biovest.           
|               | 
|10.9           |  | Business Subsidy Agreement, dated December 7, 2010, between the Economic Development Authority in and for the City of Coon Rapids and Biovest.   
|               | 
|31.1           |  | Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer (Principal Executive Officer).                                                
|               | 
|31.2           |  | Rule 13a-14(a)/15d-14(a) Certifications of Acting Chief Financial Officer (Principal Financial Officer).                                         
|               | 
|32.1           |  | 18 U.S.C. Section 1350 Certifications of Chief Executive Officer.                                                                                
|               | 
|32.2           |  | 18 U.S.C. Section 1350 Certifications of Acting Chief Financial Officer.                                                                         



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.



|                   |  |                                                               
|------------------ |  | --------------------------------------------------------------
|                   |  | BIOVEST INTERNATIONAL, INC.                                   
|                   |  | (Registrant)                                                  
|                   | 
|Date: May 13, 2011 |  | /s/ Francis E. ODonnell, Jr.                                 
|                   |  | Francis E. ODonnell, Jr., M.D.                               
|                   |  | Chairman of the Board; Chief Executive Officer; Director      
|                   |  | (Principal Executive Officer)                                 
|                   | 
|Date: May 13, 2011 |  | /s/ Brian D. Bottjer                                          
|                   |  | Brian D. Bottjer, CPA                                         
|                   |  | Acting Chief Financial Officer; Controller                    
|                   |  | (Principal Financial Officer and Principal Accounting Officer)



40