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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended June 30, 2007

OR



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

Commission file number 0-11480



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BIOVEST INTERNATIONAL, INC.

(Exact
name of issuer as specified in its charter)



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

377 Plantation Street, Worcester MA 01605

(Address of principal executive offices) (Zip Code)

(813) 864-2554

Registrants telephone number, including area code



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Securities registered pursuant
to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per
share

(Title of class)



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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 is a large accelerated filer, an accelerated filer, or a non- accelerated filer. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  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

As of July 31, 2007, there were 94,636,811 shares of the
registrants Common Stock outstanding.



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Forward-Looking Statements

Statements in this quarterly report on Form 10-Q that are 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 under the caption Risk Factors in ITEM 1.
DESCRIPTION OF BUSINESS of our Form 10-KSB for the fiscal year ended September 30, 2006 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                                                                  |  |     
|Condensed Consolidated Balance Sheets as of June 30, 2007 (unaudited) and September 30, 2006                           |  | 4                                                                                    
|Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2007 and 2006 (unaudited) |  | 5                                                                                    
|Condensed Consolidated Statement of Stockholders Deficit for the Nine Months Ended June 30, 2007 (unaudited)          |  | 6                                                                                    
|Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2007 and 2006 (unaudited)           |  | 7                                                                                    
|Notes to Condensed Consolidated Financial Statements                                                                   |  | 8                                                                                    
|ITEM 2.                                                                                                                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 30  
|ITEM 3.                                                                                                                |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 43  
|ITEM 4.                                                                                                                |  | Controls and Procedures                                                               |  | 44  
|                                                                                                                       |  |                                                                                      
|PART II.                                                                                                               |  | OTHER INFORMATION                                                                     |  |     
|ITEM 1.                                                                                                                |  | Legal Proceedings                                                                     |  | 44  
|ITEM 1A.                                                                                                               |  | Risk Factors                                                                          |  | 44  
|ITEM 2.                                                                                                                |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 44  
|ITEM 3.                                                                                                                |  | Defaults Upon Senior Securities                                                       |  | 44  
|ITEM 4.                                                                                                                |  | Submission of Matters to a Vote of Security Holders                                   |  | 44  
|ITEM 5.                                                                                                                |  | Other Information                                                                     |  | 45  
|ITEM 6.                                                                                                                |  | Exhibits                                                                              |  | 45  



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                                                                    |  | June 30, 2007(Unaudited) |             |   | September 30,2006 |  
|ASSETS                                                                                                                                                              |  |                          |             |   |                   |   |             |  
|Current assets:                                                                                                                                                     |  |                          |             |   |                   |   |             |  
|Cash                                                                                                                                                                |  | $                        | 308,000     |   |                   | $ | 460,000     |  
|Restricted cash                                                                                                                                                     |  |                          |            |   |                   |   | 2,551,000   |  
|Accounts receivable, net of $24,000 and $17,000 allowance for doubtful accounts at June 30, 2007 and September 30, 2006,
respectively                               |  |                          | 547,000     |   |                   |   | 749,000     |  
|Costs and estimated earnings in excess of billings on uncompleted contracts                                                                                         |  |                          | 9,000       |   |                   |   | 6,000       |  
|Inventories                                                                                                                                                         |  |                          | 498,000     |   |                   |   | 228,000     |  
|Prepaid expenses and other current assets                                                                                                                           |  |                          | 520,000     |   |                   |   | 266,000     |  
|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  
|                                                                                                                                                                    |  |                          | 1,882,000   |   |                   |   | 4,260,000   |  
|Property, plant and equipment, net                                                                                                                                  |  |                          | 1,282,000   |   |                   |   | 898,000     |  
|Patents and trademarks, net                                                                                                                                         |  |                          | 357,000     |   |                   |   | 379,000     |  
|Deferred financing costs                                                                                                                                            |  |                          | 891,000     |   |                   |   | 776,000     |  
|Reorganization value in excess of amounts allocated to identifiable assets                                                                                          |  |                          | 2,131,000   |   |                   |   | 2,131,000   |  
|Other assets                                                                                                                                                        |  |                          | 389,000     |   |                   |   |            |  
|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  
|                                                                                                                                                                    |  | $                        | 6,932,000   |   |                   | $ | 8,444,000   |  
|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  
|                                                                                                                                                                    |  |                         
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                               |  |                          |             |   |                   |   |             |  
|Current liabilities:                                                                                                                                                |  |                          |             |   |                   |   |             |  
|Notes payable                                                                                                                                                       |  | $                        | 1,965,000   |   |                   | $ | 2,000,000   |  
|Current maturities of long-term debt                                                                                                                                |  |                          | 7,465,000   |   |                   |   | 900,000     |  
|Accounts payable (including $1.5 million and $0.7 million due to affiliate at June 30, 2007, and September 30, 2006 respectively)                                   |  |                          | 4,480,000   |   |                   |   | 2,627,000   |  
|Customer deposits                                                                                                                                                   |  |                          | 397,000     |   |                   |   | 392,000     |  
|Royalty liability                                                                                                                                                   |  |                          | 476,000     |   |                   |   |            |  
|Accrued liabilities                                                                                                                                                 |  |                          | 1,610,000   |   |                   |   | 2,495,000   |  
|Billings in excess of costs and estimated earnings on uncompleted contracts                                                                                         |  |                          | 63,000      |   |                   |   | 137,000     |  
|Notes payable, related party                                                                                                                                        |  |                          | 9,954,000   |   |                   |   | 4,715,000   |  
|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  
|Total current liabilities                                                                                                                                           |  |                          | 26,410,000  |   |                   |   | 13,266,000  |  
|Long term debt, less current maturities                                                                                                                             |  |                          | 90,000      |   |                   |   | 1,862,000   |  
|Royalty liability, less current portion                                                                                                                             |  |                          | 4,483,000   |   |                   |   |            |  
|Derivative liability                                                                                                                                                |  |                          | 541,000     |   |                   |   | 236,000     |  
|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  
|Total liabilities                                                                                                                                                   |  |                          | 31,524,000  |   |                   |   | 15,364,000  |  
|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  
|                                                                                                                                                                    |  |                         
|Non-controlling interests in variable interest entities (Note 16)                                                                                                   |  |                          | 5,411,000   |   |                   |   | 3,600,000   |  
|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  
|                                                                                                                                                                    |  |                         
|Minority interest in consolidated subsidiary (Note 9)                                                                                                               |  |                          |            |   |                   |   | 6,000,000   |  
|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  
|                                                                                                                                                                    |  |                         
|Commitments and contingencies (Notes 14 and 15)                                                                                                                     |  |                          |            |   |                   |   |            |  
|                                                                                                                                                                    |  |                         
|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; 94,636,811 and 74,126,635 issued and outstanding at June 30, 2007 and
September 30, 2006, respectively |  |                          | 946,000     |   |                   |   | 741,000     |  
|Additional paid-in capital                                                                                                                                          |  |                          | 62,789,000  |   |                   |   | 35,034,000  |  
|Accumulated deficit                                                                                                                                                 |  |                          | (93,738,000 | ) |                   |   | (52,295,000 | )
|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  
|Total stockholders deficit                                                                                                                                         |  |                          | (30,003,000 | ) |                   |   | (16,520,000 | )
|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  
|                                                                                                                                                                    |  | $                        | 6,932,000   |   |                   | $ | 8,444,000   |  
|                                                                                                                                                                    |  |                          |             |   |                   |   |             |  

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



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##### Table of Contents

BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                                                    |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|--------------------------------------------------------------------------------------------------- |  | --------------------------- | ----------- | - | -------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ---------- | -
|                                                                                                    |  | Three Months Ended June 30, |             |   | Nine Months Ended June 30, |  
|                                                                                                    |  | 2007                        |             |   | 2006                       |   |            | 2007 |  |   | 2006        |  
|Revenue:                                                                                            |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Products                                                                                            |  | $                           | 716,000     |   |                            | $ | 1,158,000  |      |  | $ | 2,191,000   |   |  | $ | 3,315,000  |  
|Services                                                                                            |  |                             | 690,000     |   |                            |   | 893,000    |      |  |   | 2,094,000   |   |  |   | 2,095,000  |  
|                                                                                                    |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Total revenue                                                                                       |  |                             | 1,406,000   |   |                            |   | 2,051,000  |      |  |   | 4,285,000   |   |  |   | 5,410,000  |  
|                                                                                                    |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Operating costs and expenses:                                                                       |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Cost of revenue:                                                                                    |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Products                                                                                            |  |                             | 410,000     |   |                            |   | 510,000    |      |  |   | 1,265,000   |   |  |   | 1,457,000  |  
|Services                                                                                            |  |                             | 272,000     |   |                            |   | 639,000    |      |  |   | 1,035,000   |   |  |   | 1,530,000  |  
|Research and development expense                                                                    |  |                             | 2,479,000   |   |                            |   | 3,048,000  |      |  |   | 8,544,000   |   |  |   | 8,389,000  |  
|General and administrative expense                                                                  |  |                             | 160,000     |   |                            |   | 700,000    |      |  |   | 3,320,000   |   |  |   | 2,446,000  |  
|Impairment of investment in consolidated subsidiary (Note 9)                                        |  |                             |            |   |                            |   |           |      |  |   | 3,775,000   |   |  |   |           |  
|Loss on restructuring of related party royalty agreement (Note 9)                                   |  |                             |            |   |                            |   |           |      |  |   | 6,637,000   |   |  |   |           |  
|                                                                                                    |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Total operating costs and expenses                                                                  |  |                             | 3,321,000   |   |                            |   | 4,897,000  |      |  |   | 24,576,000  |   |  |   | 13,822,000 |  
|                                                                                                    |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Loss from operations                                                                                |  |                             | (1,915,000  | ) |                            |   | (2,846,000 | )    |  |   | (20,291,000 | ) |  |   | (8,412,000 | )
|                                                                                                    |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|                                                                                                    |  |                             |             |  
|Other income (expense):                                                                             |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Interest expense, net                                                                               |  |                             | (458,000    | ) |                            |   | (1,272,000 | )    |  |   | (4,049,000  | ) |  |   | (1,498,000 | )
|Loss on extinguishment of debt (Note 7)                                                             |  |                             | (9,673,000  | ) |                            |   |           |      |  |   | (9,673,000  | ) |  |   |           |  
|Loss from termination of related party anti-dilution agreement (Note 9)                             |  |                             |            |   |                            |   |           |      |  |   | (6,637,000  | ) |  |   |           |  
|Loss on derivative liability                                                                        |  |                             | (115,000    | ) |                            |   |           |      |  |   | (174,000    | ) |  |   |           |  
|Related party financing cost (Note 9)                                                               |  |                             |            |   |                            |   |           |      |  |   | (1,232,000  | ) |  |   |           |  
|Other income, net                                                                                   |  |                             | 6,000       |   |                            |   |           |      |  |   | 23,000      |   |  |   |           |  
|                                                                                                    |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|                                                                                                    |  |                             | (10,240,000 | ) |                            |   | (1,272,000 | )    |  |   | (21,742,000 | ) |  |   | (1,498,000 | )
|                                                                                                    |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Net loss before non-controlling interest in losses from variable interest entities and income taxes |  | $                           | (12,155,000 | ) |                            | $ | (4,118,000 | )    |  | $ | (42,033,000 | ) |  | $ | (9,910,000 | )
|Non-controlling interest in losses from variable interest entities                                  |  | $                           | 112,000     |   |                            |   |           |      |  | $ | 590,000     |   |  |   |           |  
|                                                                                                    |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Net loss                                                                                            |  | $                           | (12,043,000 | ) |                            | $ | (4,118,000 | )    |  | $ | (41,443,000 | ) |  | $ | (9,910,000 | )
|                                                                                                    |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|                                                                                                    |  |                             |             |  
|Loss per common share:                                                                              |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Basic and diluted                                                                                   |  | $                           | (0.13       | ) |                            | $ | (0.06      | )    |  | $ | (0.45       | ) |  | $ | (0.13      | )
|                                                                                                    |  |                             |             |  
|Weighted average shares outstanding:                                                                |  |                             |             |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Basic and diluted                                                                                   |  |                             | 94,474,866  |   |                            |   | 73,361,988 |      |  |   | 92,106,133  |   |  |   | 77,469,259 |  

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



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##### Table of Contents

BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT

NINE MONTHS ENDED JUNE 30, 2007

(unaudited)



|                                                                                                |  |              |  |        |         |                           |   |            |                    |  |   |             |   |  |   |             |  
|----------------------------------------------------------------------------------------------- |  | ------------ |  | ------ | ------- | ------------------------- | - | ---------- | ------------------ |  | - | ----------- | - |  | - | ----------- | -
|                                                                                                |  | Common Stock |  |        |         |                           |   |            |                    |  |  
|                                                                                                |  | Shares       |  | Amount |         | AdditionalPaid-in Capital |   |            | AccumulatedDeficit |  |   | Total       |  
|Balances at September 30, 2006                                                                  |  | 74,126,635   |  | $      | 741,000 |                           | $ | 35,034,000 |                    |  | $ | (52,295,000 | ) |  | $ | (16,520,000 | )
|Employee share-based compensation                                                               |  |             |  |        |        |                           |   | 931,000    |                    |  |   |            |   |  |   | 931,000     |  
|Employee options issued for accrued bonuses                                                     |  |             |  |        |        |                           |   | 402,000    |                    |  |   |            |   |  |   | 402,000     |  
|Stock issued for related-party contract modification                                            |  | 10,000,000   |  |        | 100,000 |                           |   | 9,400,000  |                    |  |   |            |   |  |   | 9,500,000   |  
|Stock issued for related-party purchase of non- controlling interest in consolidated subsidiary |  | 10,000,000   |  |        | 100,000 |                           |   | 5,900,000  |                    |  |   |            |   |  |   | 6,000,000   |  
|Sale of common stock                                                                            |  | 326,098      |  |        | 4,000   |                           |   | 264,000    |                    |  |   |            |   |  |   | 268,000     |  
|Exercise of stock options                                                                       |  | 184,078      |  |        |        |                           |   | 9,000      |                    |  |   |            |   |  |   | 9,000       |  
|Exercise of warrants                                                                            |  |             |  |        | 1,000   |                           |   | (1,000     | )                  |  |   |             |   |  |   |            |  
|Major stockholder expense incurred on behalf of the Company                                     |  |             |  |        |        |                           |   | 8,780,000  |                    |  |   |            |   |  |   | 8,780,000   |  
|Warrants issued to guarantee financing transactions                                             |  |             |  |        |        |                           |   | 2,070,000  |                    |  |   |            |   |  |   | 2,070,000   |  
|Net loss                                                                                        |  |             |  |        |        |                           |   |           |                    |  |   | (41,443,000 | ) |  |   | (41,443,000 | )
|                                                                                                |  |              |  |        |         |                           |   |            |                    |  |   |             |   |  |   |             |  
|Balances at June 30, 2007                                                                       |  | 94,636,811   |  | $      | 946,000 |                           | $ | 62,789,000 |                    |  | $ | (93,738,000 | ) |  | $ | (30,003,000 | )
|                                                                                                |  |              |  |        |         |                           |   |            |                    |  |   |             |   |  |   |             |  

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



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##### Table of Contents

BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                               |  |                          |             |   |      |   |            |  
|------------------------------------------------------------------------------ |  | ------------------------ | ----------- | - | ---- | - | ---------- | -
|                                                                               |  | Nine Months EndedJune 30 |            
|                                                                               |  | 2007                     |             |   | 2006 |  
|Cash flows from operating activities:                                          |  |                          |             |   |      |   |            |  
|Net loss                                                                       |  | $                        | (41,443,000 | ) |      | $ | (9,910,000 | )
|Adjustments to reconcile net loss to net cash flows from operating activities: |  |                          |             |   |      |   |            |  
|Depreciation                                                                   |  |                          | 267,000     |   |      |   | 410,000    |  
|Amortization                                                                   |  |                          | 22,000      |   |      |   | 22,000     |  
|Employee share-based compensation                                              |  |                          | 931,000     |   |      |   | 514,000    |  
|Impairment of investment in consolidated subsidiary                            |  |                          | 3,775,000   |   |      |   |           |  
|Loss on restructuring of related party royalty agreement                       |  |                          | 6,637,000   |   |      |   |           |  
|Related party financing cost                                                   |  |                          | 1,232,000   |   |      |   |           |  
|Loss from termination of related party anti-dilution agreement                 |  |                          | 6,637,000   |   |      |   |           |  
|Loss on extinguishment of debt                                                 |  |                          | 9,673,000   |   |      |   |           |  
|Amortization of discount on notes payable                                      |  |                          | 592,000     |   |      |   | 247,000    |  
|Amortization of deferred loan costs                                            |  |                          | 127,000     |   |      |   | 39,000     |  
|Warrants issued for guarantees of financing                                    |  |                          | 2,070,000   |   |      |   | 498,000    |  
|Warrants issued for services                                                   |  |                          |            |   |      |   | 41,000     |  
|Non-controlling interest in loss of variable interest entities                 |  |                          | (590,000    | ) |      |   |           |  
|Loss on derivative liability                                                   |  |                          | 174,000     |   |      |   |           |  
|Changes in cash resulting from changes in:                                     |  |                          |             |   |      |   |            |  
|Operating assets                                                               |  |                          | (715,000    | ) |      |   | (567,000   | )
|Operating liabilities                                                          |  |                          | 1,302,000   |   |      |   | 205,000    |  
|                                                                               |  |                          |             |   |      |   |            |  
|Net cash flows from operating activities                                       |  |                          | (9,309,000  | ) |      |   | (8,501,000 | )
|                                                                               |  |                          |             |   |      |   |            |  
|Cash flows from investing activities:                                          |  |                          |             |   |      |   |            |  
|Purchase of property and equipment                                             |  |                          | (651,000    | ) |      |   | (672,000   | )
|Deposit of restricted cash                                                     |  |                          |            |   |      |   | (7,869,000 | )
|Release of restricted cash                                                     |  |                          | 2,551,000   |   |      |   | 2,799,000  |  
|                                                                               |  |                          |             |   |      |   |            |  
|Net cash flows from investing activities                                       |  |                          | 1,900,000   |   |      |   | (5,742,000 | )
|                                                                               |  |                          |             |   |      |   |            |  
|Cash flows from financing activities:                                          |  |                          |             |   |      |   |            |  
|Repayment of notes payable and long-term debt                                  |  |                          | (2,730,000  | ) |      |   | (597,000   | )
|Advances from related party                                                    |  |                          | 5,239,000   |   |      |   | 3,328,000  |  
|Proceeds from long term debt                                                   |  |                          | 2,313,000   |   |      |   | 8,067,000  |  
|Proceeds from stock subscription receivable                                    |  |                          |            |   |      |   | 682,000    |  
|Proceeds from sale of stock                                                    |  |                          | 268,000     |   |      |   |           |  
|Payment for repurchase of stock                                                |  |                          |            |   |      |   | (6,000,000 | )
|Proceeds from exercise of stock options                                        |  |                          | 9,000       |   |      |   |           |  
|Payment of deferred financing costs                                            |  |                          | (242,000    | ) |      |   | (768,000   | )
|Proceeds from non-controlling-interest in variable interest entities           |  |                          | 2,400,000   |   |      |   | 3,600,000  |  
|Proceeds from non-controlling-interest in consolidated subsidiary              |  |                          |            |   |      |   | 6,000,000  |  
|                                                                               |  |                          |             |   |      |   |            |  
|Net cash flows from financing activities                                       |  |                          | 7,257,000   |   |      |   | 14,312,000 |  
|                                                                               |  |                          |             |   |      |   |            |  
|Net change in cash                                                             |  |                          | (152,000    | ) |      |   | 69,000     |  
|Cash at beginning of period                                                    |  |                          | 460,000     |   |      |   | 32,000     |  
|                                                                               |  |                          |             |   |      |   |            |  
|Cash at end of period                                                          |  | $                        | 308,000     |   |      | $ | 101,000    |  
|                                                                               |  |                          |             |   |      |   |            |  
|                                                                               |  |                         
|Supplemental disclosure of cash flow information:                              |  |                          |             |   |      |   |            |  
|                                                                               |  |                         
|Non-cash financing and investing transactions:                                 |  |                          |             |   |      |   |            |  
|Issuance of common stock to retire convertible debt                            |  | $                        |            |   |      | $ | 1,282,000  |  
|Issuance of warrant (discount on note payable)                                 |  |                          |            |   |      |   | 4,818,000  |  
|Issuance of stock to purchase minority interest in consolidated subsidiary     |  |                          | 6,000,000   |   |      |   |            |  
|Stock issued for payment of accrued expenses                                   |  |                          |            |   |      |   | 408,000    |  
|Stock options issued for accrued bonuses                                       |  |                          | 402,000     |   |      |   |           |  
|Transferred fixed assets to inventory, net                                     |  | $                        |            |   |      | $ | 62,000     |  
|Cash paid for interest during period:                                          |  | $                        | 503,000     |   |      | $ | 118,000    |  

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



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)

1. Description of the company:

Biovest International, Inc. (the Company or Biovest) is a biotechnology company focused on the development of a personalized therapeutic anti-cancer vaccine for the treatment of low-grade Follicular Lymphoma (FL),
which is named BiovaxID. FL is a deadly cancer of the white blood cells. This therapeutic vaccine is currently in a pivotal Phase 3 clinical trial. In September 2001, the Company entered into a Cooperative Research and Development Agreement
(CRADA) with the National Cancer Institute (NCI) regarding the development of this therapeutic vaccine. In April 2004, the Investigational New Drug application (IND) for BiovaxID was transferred to the Company from the NCI.
In May 2006, the FDA notified us that the FDA had granted fast track status to BiovaxID and further notified us of the approval of our request to utilize molecular remissions data as a new secondary endpoint in our ongoing clinical trial
of BiovaxID. The Company terminated the CRADA with NCI on September 25, 2006. Included in this transaction was the termination of the NCIs responsibility of the trial safety and monitoring oversight by the NCI Data Safety and Monitoring
Board (DSMB). A new Data Monitoring Committee (DMC) has been established for the BiovaxID clinical trials. The current independent DMC is composed of two physicians with oncology training and experience, and one biostatistician trained and
experienced in clinical trials data analysis.

On June 2, 2007 the DMC met to review all data for the BiovaxID Phase 3 pivotal efficacy study.
Following the meeting with the DMC, the Company notified the DMC of its intent to seek Conditional Approval with the U.S. Food and Drug Administration (FDA) and its European counterpart, the European Medicines Agency (EMEA). The next regularly
scheduled meeting of the DMC is planned for September 2007, at which point they will be provided with an updated data set for review. The Company plans to seek conditional approval based on the pre-clinical and clinical Phase 2 and ongoing Phase 3
data supporting its highly favorable risk-benefit profile, driven in large part by its exemplary safety record, and evidence of efficacy to date in the treatment of FL. If conditionally approved by the target date of mid-June 2008, the Company would
anticipate commencing commercial sales and marketing by early 2009. Conditional approval would require the Company to complete the ongoing Phase 3 study as a condition to continued marketing of BiovaxID.

The Company manufactures instruments and disposables used in hollow fiber production of cell culture products. 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. The Company has developed an automated cell culture instrument, called AutovaxID  which reduces
the manpower and production space requirements and costs associated with the production of monoclonal antibodies, a critical step in the production of personalized therapeutics and vaccines. This instrument will facilitate more efficient commercial
production of BiovaxID following approval of the vaccine, if and when it is obtained. In May, 2006, the Company was informed that no further FDA review or approval is required to market the AutovaxID instruments. In December, 2006, the Company
acquired a facility in St. Louis, Missouri, to market, assemble and distribute the instrument through its wholly-owned subsidiary AutovaxID, Inc. The St Louis facility is anticipated to be fully operational in the fourth quarter of 2007. Delivery of
the new instruments began in March, 2007. On June 8, 2007 the Company entered into a Non-Exclusive Distribution Agreement with VWR International, Inc. (VWR) to market and to distribute the AutovaxID instrument in North America. VWR
will commence its sales and marketing activities in September 2007.

The Company produces mammalian and insect cells, monoclonal antibodies,
recombinant and secreted proteins and other cell culture products using the unique capability, expertise and proprietary advancements in cell production process known as hollow fiber perfusion. Prior to September 2005, the Company was designated as
the National Cell Culture Center (NCCC) under a grant from the National Institutes of Health and from September 2005 through June 30, 2006, continued to provide the same services under an interim grant. Subsequent to June 30,
2006, the Company has discontinued services under the grant, and has since integrated those activities into its commercial contract manufacturing business.

As of June 30, 2007, the Company is a 77% owned subsidiary of Accentia Biopharmaceuticals, Inc. (Accentia).



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



2. 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 nine months ended June 30, 2007 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-KSB for the fiscal year ended
September 30, 2006.

Consolidation policy:

The
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
Financial Accounting Standards Board (FASB) Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46R). The 2007 condensed consolidated financial statements include Biovest International, Inc., its wholly
owned subsidiaries Biovax, Inc., AutovaxID, Inc., Biolender LLC and Biolender II LLC; 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 (Note 15). All significant inter-company balances and transactions have been eliminated.

Revenue recognition:

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

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



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



2. Significant accounting policies (continued):

Recent Accounting Pronouncements:

In September, 2006 the SEC staff issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides guidance on the process of quantifying financial statement misstatements, advising
companies to use both a balance sheet (iron curtain) and an income statement (rollover) approach when quantifying and evaluating the materiality of a misstatement. The iron curtain approach quantifies a misstatement based on
the effects of correcting the misstatement existing in the balance sheet at the end of the reporting period. The rollover approach quantifies a misstatement based on the amount of the error originating in the current period income statement,
including the reversing effect of prior year misstatements. The use of this method can lead to the accumulation of misstatements in the balance sheet.

Under the guidance of SAB 108, the Company will be required to adjust its financial statements if either the iron curtain or rollover approach results in the quantification of a material misstatement. Previously filed reports would not be
amended, but would be corrected the next time the company files prior year financial statements. Companies are allowed to record a one-time cumulative effect adjustment to correct errors in prior years that previously had been considered immaterial
based on their previous approach. SAB 108 is effective for the Company upon issuance of its Fiscal 2007 annual financial statements. The Company is currently assessing the effect of SAB 108, if any, on its financial position or results of
operations.

In February, 2007, the Financial Accounting Standards Board (FASB) issued Statement No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, including and amendment of FASB Statement No. 115 (FAS 159). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 is effective for fiscal years beginning after November 15, 2007. Management is currently assessing the adoption of FAS 159, and the effect, if any, on the Companys financial
position or results of operations.

3. Liquidity and management plans:

During the nine months ended June 30, 2007, the Company incurred a net loss of $41.4 million, of which approximately $24 million were non-cash losses resulting from four transactions between the Company,
Accentia, and Laurus, the Companys and Accentias senior lender, regarding modification and termination of certain agreements and approximately $3.8 million from an impairment charge on an investment in a consolidated subsidiary. See
Notes 7 and 9 for further discussion. At June 30, 2007, the Company had an accumulated deficit of approximately $93.7 million and working capital deficit of approximately $24.5 million. The Company 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 and short-term borrowings (including from affiliates), and the sale of stock to, and inter-company demand loans
from Accentia Biopharmaceuticals, Inc. (Accentia) as discussed below. The Companys auditors issued a going concern uncertainty on the financial statements for the year ended September 30, 2006, 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.



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



3. Liquidity and management plans (continued):

Phase 3 Clinical Trial and planned commercialization expenditures:

The Company intends to seek Conditional Approval
with the U.S. Food and Drug Administration (FDA) and its European counterpart, the European Medicines Agency (EMEA) based on the pre-clinical and clinical Phase 2 and ongoing Phase 3 data supporting its highly favorable risk-benefit profile, driven
in large part by its exemplary safety record, and evidence of efficacy to date in the treatment of FL. Pending the outcome of this application for conditional approval, the Company anticipates that it will curtail ongoing clinical trial activities
and that clinical trial expenses will significantly decrease compared to that for prior periods. If conditionally approved by the target date of mid-June 2008, the Company would anticipate commencing commercial sales and marketing by early 2009.
Conditional approval would require the Company to complete the ongoing Phase 3 study as a condition to continued marketing of BiovaxID. Accordingly, should the Company receive conditional approval, clinical trial activities and related expenses are
anticipated to return to the levels experienced in periods prior to the application for conditional approval until the clinical trial is completed. While the Company pursues FDA approval of BiovaxID, the Company plans, subject to the availability of
financing, to make significant investments in laboratory equipment, including the development of automated cell production instruments, and potentially space and related capability necessary to support commercial vaccine production requirements
anticipated upon FDA approval of BiovaxID. The Companys ability to timely access required financing will continue to be essential to support the ongoing Phase 3 clinical trial. 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 clinical trial and commercialization efforts.

In
addition, the Company established an assembly and distribution facility in December 2006, for the commercial production of AutovaxID instruments. This facility obtained a Certificate of Occupancy in June 2007 and is anticipated to be operational in
September 2007. The completion of the AutovaxID dedicated facility and anticipated start-up will require significant expenditures for leasehold improvements, construction, equipment, and personnel costs, in advance of significant revenues from the
commercial sale of AutovaxID instruments. Approximately $221,000 of the $308,000 cash on hand at June 30, 2007 was allocated for this purpose. The Companys inability to obtain additional required funds or any substantial delay in
obtaining additional required funds will have a material adverse effect on the ability to commercialize the AutovaxID instruments.

The company began
producing revenues from the sale of AutovaxID instruments in March 2007. On June 8, 2007 the Company entered into a Non-Exclusive Distribution Agreement with VWR International, Inc. (VWR) to market and to distribute the AutovaxID
instrument in North America. VWR plans to commence its sales and marketing activities in September 2007. On April 17, 2007, the Company executed an amendment agreement with its senior lender, Laurus, whereby the company issued to Laurus a right
to a minimum royalty stream on AutovaxID instrument sales (Note 8).

Advances to the Company by Accentia:

During the nine months ended June 30, 2007 the Company borrowed an additional $5.2 million to increase the total balance due to Accentia to approximately $10.0
million. The advances by Accentia as of June 30, 2007 consisted of cash loans, payments directly to third parties on the Companys behalf, allocated inter-company expenses, accrued interest of $0.9 million, and amounts owed in connection
with the conversion of notes outstanding at the time of Accentias initial investment in June 2003. The approximate $10.0 million balance of the inter-company loans is evidenced by three secured promissory demand notes which accrue interest at
the prime rate.

Additional New Market Tax Credit financing:

On December 8, 2006, the Company through its wholly owned subsidiary, AutovaxID, Inc., closed a financing transaction that was structured in an effort to obtain certain advantages by virtue of being located in a qualifying census
tract. The Companys new AutovaxID assembly and distribution facility is located in such a tract. The series of transactions, described in Note 15, resulted in the Company receiving approximately $4.5 million for facility improvements,
startup-costs and general working capital.



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



3. Liquidity and management plans (continued):

Notes payable:

On January 16, 2007, the Company issued a promissory note to Pulaski Bank in the amount of $1.0
million. This loan bears interest at prime less 0.5% (currently 7.75%) and was originally payable July 5, 2007. The maturity date of the note was subsequently extended to September 5, 2007. The Company paid $25,000 in cash as well as
warrants to purchase 85,710 shares of the Companys common stock at $1.10 per share to Pulaski Bank in consideration for this extension. In addition, the Company issued an additional promissory note to Pulaski Bank on March 22, 2007, in
the amount of $0.75 million bearing interest at prime less 0.5% (currently 7.75%) with an original maturity date of April 21, 2007. The maturity date of the note was subsequently extended to September 21, 2007. The Company paid $18,750 in
cash as well as warrants to purchase 64,290 shares of the Companys common stock at $1.10 per share to Pulaski Bank in consideration for this extension. On June 26, 2007 the Company issued a promissory note to Southwest Bank Creve Coeur
Financial Center of St. Louis, MO (Southwest) in the amount of $0.2 million. This loan bears interest at prime plus 1.0% (currently 9.25%) and is payable December 26, 2007. The Company issued warrants to purchase 1,879,543 shares of
the Companys common stock to certain officers and directors of the Company or Accentia in conjunction with their guarantee of the notes payable to Pulaski and Southwest.

Amendment to Laurus Loan:

On April 17, 2007, the Company executed an amendment agreement with its senior
lender, Laurus, to defer payments of principal on its $7.8 million loan until August 2007, and to allow an increase in indebtedness by $7.0 million for future bridge financing purposes. In return for the forbearance, the company issued to Laurus a
right to a minimum royalty stream on AutovaxID instrument sales. As of August 1, 2007 certain principal and interest payments due to Laurus had not been made when due, although no default had been declared on these obligations as of this time.
See Notes 7 and 8.

Additional expected financing activity:

Management intends to attempt to meet its cash requirements through proceeds from its cell, culture and instrument manufacturing activities, vendor credit, short-term borrowings, debt and equity financings, and strategic transactions such
as collaborations and licensing. Accentia has advanced all payments required under its investment agreement obligation of $20 million. Additionally, Accentia has loaned the Company or otherwise paid on its behalf an additional $10.0 million through
June 30, 2007, through the inter-company demand loans discussed above. While investments and loans from Accentia have been a primary source of financing for the Company since 2003, the Company has been informed by Accentia that provisions of
certain of its loan and debenture financing agreements preclude Accentia from making any additional direct cash contributions to the Company. Accordingly, the Companys ability to continue present operations and meet obligations for vaccine
development is dependent upon the Companys ability to obtain significant external funding from sources other than Accentia. Additional sources of funding have not been established; however, additional financing is currently being sought by the
Company from a number of sources other than Accentia, including the sale of equity or debt securities, strategic collaborations, recognized research funding programs, as well as domestic and/or foreign licensing of our vaccine. Management is
currently in the process of exploring various financing alternatives, and has hired an investment banking firm to assist in these efforts. 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 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
business units that are non-essential to the ongoing development or future commercialization of BiovaxID and AutovaxID, 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.

4. Concentrations of credit risk and major customer information:

The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support amounts due.
Management performs ongoing credit evaluations of its customers. One customer accounted for 24% of revenues for the nine months ended June 30, 2007, and 10% of trade accounts receivable as of June 30, 2007. A significant amount of the
Companys revenue has been derived from export sales. The Companys export sales were 34% of revenues for the nine months ended June 30, 2007, compared to 25% for the same period in 2006. For the nine months ended June 30, 2007,
sales to customers in the United Kingdom accounted for 26% of total revenue, while no single foreign country represented sales in excess of 10% of revenues for the nine months ended June 30, 2006.



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



5. Inventories:

Inventories consist of the following:



|                |  |                          |         |                   |   |        
|--------------- |  | ------------------------ | ------- | ----------------- | - | -------
|                |  | June 30, 2007(Unaudited) |         | September 30,2006
|Finished goods  |  |                          | 312,000 |                   | $ | 34,000 
|Work-in-process |  |                          | 43,000  |                   |   | 97,000 
|Raw materials   |  |                          | 143,000 |                   |   | 97,000 
|                |  |                          |         |                   |   |        
|                |  | $                        | 498,000 |                   | $ | 228,000
|                |  |                          |         |                   |   |        

6. Notes payable:

On January 16, 2007, the Company closed an amended and restated loan transaction (Note 1) with Pulaski Bank and Trust Company of St. Louis, MO (Pulaski), which amended the Loan Agreement dated September 5,
2006 pursuant to which Pulaski agreed to loan $1 million to the Company pursuant to an unsecured Promissory Note. The Company issued warrants to purchase 25,000 shares of the Companys common stock as a loan origination fee. The Company also
closed on a second loan transaction with Pulaski Bank on March 22, 2007 (Note 2), pursuant to which Pulaski agreed to loan an additional $0.75 million to the Company pursuant to an unsecured Promissory Note. The balance of both
notes in the June 30, 2007 financial statements includes principal of $1.75 million plus accrued interest of $13,000. The company issued warrants to purchase 1,770,453 shares of the Companys common stock to certain officers and directors
in conjunction with their guarantee of these notes payable.

Note 1 had an original maturity date of July 5, 2007, and was subsequently extended to
September 5, 2007. The Company paid $25,000 in cash as well as warrants to purchase 85,710 shares of the Companys common stock with a five year term at $1.10 per share to Pulaski Bank in consideration for this extension. The note can be
prepaid by the Company at any time without penalty. The note bears interest at the prime rate minus .05% (7.75% per annum at June 30, 2007), requiring monthly payments of interest only. The note is an unsecured obligation of the Company and is
subordinated to the Companys outstanding loan to Laurus Master Fund, Ltd. The note is guaranteed by entities, officers and other individuals affiliated with the Company or Accentia, the majority stockholder of the Company. The Company has
entered into Indemnification Agreements with each of the guarantors. The Company issued warrants to purchase 1,388,636 shares of the Companys common stock to certain officers and directors in conjunction with their guarantee of this note
payable.

Note 2 had an original maturity date of May 21, 2007, and was subsequently extended to September 21, 2007. The Company paid $18,750 in
cash as well as warrants to purchase 64,290 shares of the Companys common stock with a five year term at $1.10 per share to Pulaski Bank in consideration for this extension. The note bears interest at the prime rate minus .05% (7.75% per annum
as of June 30, 2007), with interest only payments due monthly. The note is an unsecured obligation of the Company and is subordinated to the Companys outstanding loan to Laurus Master Fund, Ltd. The note is guaranteed by entities and
individuals affiliated with the Company or Accentia, the majority stockholder of the Company. The Company has entered into Indemnification Agreements with each of the guarantors. The Company issued to the guarantors warrants to purchase an aggregate
total of 381,817 shares of the Companys common stock, par value $0.01 per share, at an exercise price of $1.10 per share. The Company issued to Pulaski Bank warrants to purchase a total of 25,000 shares of the Companys common stock as a
loan origination fee.

The Company agreed to indemnify and hold harmless each guarantor should their guarantees be called by the Lender by agreeing to
compensate each affected guarantor by an issuance of restricted common stock equal to 700% of the amount of their guarantee if the guarantee is called upon.

On June 26, 2007 the Company closed a loan transaction with Southwest Bank Creve Coeur Financial Center of St. Louis, MO (Southwest) pursuant to which Southwest agreed to loan $0.2 million to the Company pursuant to an
unsecured Promissory Note. The note matures on December 26, 2007, and can be prepaid by the Company at any time without penalty. The note bears interest at the prime rate plus 1.0% (9.25% per annum at June 30, 2007), requiring monthly
payments of interest only. The note is an unsecured obligation of the Company and is subordinated to the Companys outstanding loan to Laurus Master Fund, Ltd. The note is guaranteed by an officer of Accentia, the majority stockholder of the
Company. The Company has entered into an Indemnification Agreement with the guarantor whereby the Company has agreed to indemnify and hold harmless the guarantor should the guarantee be called by the Lender.



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



6. Notes payable (continued):



In conjunction with the issuance of this note payable the Company issued to the guarantor warrants to purchase
109,090 shares of the Companys Common Stock, par value $0.01 per share, at an exercise price of $1.10 per share (the Warrants). The Warrants will expire on January 26, 2012. Under the terms of the Warrants, the guarantors
shall have piggy-back registration rights for the shares underlying the Warrants.

The balance of this note in the June 30, 2007 financial statements
includes principal of $0.2 million plus accrued interest of $2,000.

7. Long-term debt:

Long-term debt consists of the following:



|                                                                                                                                                                                                    |  |                          |            |   |                   |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ----------------- | - | --------- | -
|                                                                                                                                                                                                    |  | June 30, 2007(unaudited) |            |   | September 30,2006 |  
|Note payable, Laurus Master Fund, $7,799,000 face value, variable rate (10.25% at June 30,
2007) amortizing note payable due in monthly payments through May 31, 20091                              |  | $                        | 7,110,000  |   |                   | $ |          |  
|                                                                                                                                                                                                    |  |                         
|Note payable, Laurus Master Fund, $2,500,000 face value, prime rate (8.25% at September 30,
2006) non-amortizing note payable, secured by restricted cash in escrow, originally due March 31, 20092 |  |                          |           |   |                   |   | 906,000   |  
|                                                                                                                                                                                                    |  |                         
|Note payable, Laurus Master Fund, $5,066,000 face value, variable rate (10.25% at September 30, 2006) amortizing note payable originally due in monthly payments through March 31, 20092            |  |                          |           |   |                   |   | 1,448,000 |  
|                                                                                                                                                                                                    |  |                         
|Notes payable, interest at 10%; due in 2007; convertible into common stock at $1.00 per share.                                                                                                      |  |                          | 47,000     |   |                   |   | 114,000   |  
|                                                                                                                                                                                                    |  |                         
|Other                                                                                                                                                                                               |  |                          | 105,000    |   |                   |   | 208,000   |  
|Accrued interest, long-term debt                                                                                                                                                                    |  |                          | 293,000    |   |                   |   | 86,000    |  
|                                                                                                                                                                                                    |  |                          |            |   |                   |   |           |  
|                                                                                                                                                                                                    |  |                          | 7,555,000  |   |                   |   | 2,762,000 |  
|Less current maturities                                                                                                                                                                             |  |                          | (7,465,000 | ) |                   |   | (900,000  | )
|                                                                                                                                                                                                    |  |                          |            |   |                   |   |           |  
|                                                                                                                                                                                                    |  | $                        | 90,000     |   |                   | $ | 1,862,000 |  
|                                                                                                                                                                                                    |  |                          |            |   |                   |   |           |  

---

|1 | This note is collateralized by all cash, restricted cash, accounts receivable, inventory, fixed assets and other assets. The note also contains certain restrictive covenants.
Pursuant to the original terms of this secured promissory note, the Company was required to make certain principal and interest payments commencing in calendar 2007. The Company did not commence making such payments when originally due and reached
an understanding that such payments would not commence while the Company sought additional financing. This understanding was formalized into a letter agreement dated March 21, 2007 (the Letter Agreement). The company closed on a
short-term borrowing of $750,000 from Pulaski Bank and this Letter Agreement became effective on April 17, 2007. In addition to formalizing and continuing Laurus forbearance, the Letter Agreement rescheduled future payments due from the
Company to Laurus under the Note. Under the Letter Agreement past due and ongoing principal payments on the Note were deferred until August 1, 2007, when adjusted monthly principal payments of $0.3 million were to commence. As consideration for
the forbearance the Company granted to Laurus a non-cancelable royalty equal to three percent of world-wide net sales of AutovaxID instruments for a period of five years commencing on May 31, 2007. Under the terms of the royalty agreement the
Companys royalty payments to Laurus are required to aggregate to a minimum of $8 million with $0.5 million of the minimum royalty being payable on December 31, 2007 and the balance (if any), less actual royalties paid, being due at the
end of the five year royalty term (Note 8). In addition, upon satisfaction of certain conditions of the Letter Agreement, Laurus consented to the Company seeking and, if available, entering into bridge loans in an aggregate amount of up to $7.0
million. As of August 14, 2007, certain principal and interest payments due to Laurus had not been made when due, although no default has been declared by Laurus on these obligations as of this time. As a result, the balance due on this note
($7.1 million) has been included in current liabilities in the accompanying June 30, 2007 balance sheet.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | Converted to Note Payable to Laurus Master Fund $7,799,000 face value, discussed above.
|- | ---------------------------------------------------------------------------------------



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



7. Long-term debt (continued):

Future maturities of long-term debt are as follows:



|                          |  |   |           |  
|------------------------- |  | - | --------- | -
|Years ending June 30,     |  |   |          
|2008                      |  | $ | 7,872,000 |  
|2009                      |  |   | 87,000    |  
|                          |  |   |           |  
|Total maturities          |  |   | 7,642,000 |  
|Less unamortized discount |  |   | (404,000  | )
|                          |  |   |           |  
|                          |  | $ | 7,555,000 |  
|                          |  |   |           |  

Amendment to Laurus Loan:

On April 17, 2007, the Company executed an amendment agreement (the Amendment) with its senior lender, Laurus, to defer payments of principal on its $7.8 million loan until August, 2007, at which
point adjusted principal payments of $0.3 million per month were to commence. Interest on this loan will continue to accrue at prime plus 2.0% (10.25% at June 30, 2007) and is due monthly. As of August 1, 2007, certain principal and
interest payments due to Laurus had not been made when due, although no default has been declared by Laurus on these obligations as of this time and therefor the $7.1 million has been included in current liabilities in the accompanying 2007 balance
sheet. As consideration for the forbearance the Company granted to Laurus a non-cancelable royalty equal to three percent of world-wide net sales of AutovaxID instruments for a period of five years commencing on May 31, 2007. Under the terms of
the royalty agreement the Companys royalty payments to Laurus are required to aggregate to a minimum of $8.0 million with $0.5 million of the minimum royalty being payable on December 31, 2007 and the balance (if any), less actual
royalties paid, being due on May 31, 2012 (Note 8). In addition, upon satisfaction of certain conditions of the Amendment, Laurus consented to the Company seeking and, if available, entering into bridge loans in an aggregate amount of up to
$7.0 million.

The Company applied the provisions of EITF 96-19, Debtors Accounting for Modification or Exchange of Debt Instruments to the
Amendment. EITF 96-19 provides that substantial modifications of terms should be treated in the same manner as an extinguishment of debt and thus accounted for under the provisions of SFAS 125. A cash-flow test is used to determine if the
modification is substantial whereby cash flows prior to the modification are compared to cash flows subsequent to the modification. EITF 96-19 states that if the discounted cash flows under the terms of the new debt instrument are at least ten
percent different from the discounted cash flows under the terms of the original instrument then the new terms represent a substantial modification and an extinguishment of debt has occurred. The Company reached the conclusion that the modification
of terms of the $7.8 million loan from Laurus in addition to the $8.0 million minimum royalty payment due to Laurus under the Amendment constitutes a substantial modification of terms and thus treated the Amendment as an extinguishment of debt. The
Company incurred a $9.7 million loss on extinguishment of debt as a result of this transaction which is included in other income (expense) in the accompanying condensed consolidated statement of operations for the three and nine months ended
June 30, 2007.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



8. Royalty liability

On April 17, 2007, the Company executed an amendment agreement (the Amendment) with its senior lender, Laurus, to defer payments of principal on its $7.8 million loan (Note 7). As consideration for the forbearance the Company
granted to Laurus a non-cancelable royalty equal to three percent of world-wide net sales of AutovaxID instruments for a period of five years commencing on May 31, 2007. Under the terms of the royalty agreement the Companys royalty payments to
Laurus are required to aggregate to a minimum of $8.0 million with $0.5 million of the minimum royalty being payable on December 31, 2007 and the balance (if any), less actual royalties paid, being due on May 31, 2012.

The Company recorded the royalty liability based on the present value of the minimum payments due under the Amendment. Management has determined that the recorded
liability represents their best estimate of future payments due under this agreement. Additional royalty expense, if any, will be recorded as incurred or as it becomes reasonably estimable. Therefore, the actual royalty liability could exceed the
recorded amount.

9. Related Party Transactions:

Notes payable, related party:

Notes payable, related party includes amounts advanced under three secured promissory demand notes issued to
Accentia Biopharmaceuticals, Inc., bearing interest at the prime rate. As of June 30, 2007, the total balance owed to Accentia under these notes was approximately $10.0 million. Related party interest expense of $0.5 million and $0.3 million
was incurred for the nine months ended June 30, 2007 and 2006, respectively and $0.2 million and $0.1 million for the three months ended June 30, 2007 and 2006, respectively.

Modification and termination of agreements:

The Company borrowed $3.1 million from Accentia to facilitate the
purchase of Biolender II in the New Market Tax Credit Transaction (Note 15). This borrowing was evidenced by the execution of an additional promissory demand note bearing interest at prime rate and $1.1 million due under this note was paid
subsequent to the closing of the December New Market Tax Credit transactions and the remaining $2.0 million is included in the June 30, 2007 balance in Notes payable, related party.

On October 31, 2006, the Company entered into a series of agreements with Accentia modifying certain material terms of the relationship between the two companies. The material terms of these modifications to the
previously existing agreements are summarized as follows:



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



9. Related Party Transactions (continued):



| |  |  | The Company and Accentia entered into a Royalty Agreement that terminated and superseded the Biologics Products Commercialization Agreement (the Biologics
Commercialization Agreement), dated August 17, 2004, between the two companies. The Biologics Commercialization Agreement had provided that Accentia was the exclusive commercialization partner for the Companys biologic products and
was entitled to 49% of the Companys net profits from the sale of biologic products should Accentias ownership percentage in the Company drop below 50%. Net revenue as used in the Biologics Commercialization Agreement included all
receipts from the sale, license, sub-license, joint venture or other receipts from the biologic products less all expenses including the costs of product acquisition, research, manufacture, sales, distribution, commercialization and governmental
regulation. The new Royalty Agreement provides that Accentia is no longer the Companys exclusive commercialization partner and replaces the share of net profits with a 19.5% royalty based on net sales and license revenue of biologics products.
The products and territory subject to the Royalty Agreement remain identical to those terms as previously contained in the Biologics Commercialization Agreement. In consideration for Accentia entering into this Royalty Agreement, the Company agreed
to issue to Accentia 5 million new shares of the Companys common stock with a fair value of $4.8 million on the date of modification. No royalty expense relating to the Royalty Agreement was incurred during the nine months ended
June 30, 2007. A charge to the Company of $4.8 million was recorded in operating expense and is included in loss on restructuring related party royalty agreement in the accompanying condensed consolidated statement of operations for
the nine months ended June 30, 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company and Accentia entered into a Termination Agreement under which Accentia agreed to immediately terminate its absolute anti-dilution rights that were
granted to Accentia pursuant to the First Right of Refusal Agreement dated June 16, 2003 with the Company. In consideration of Accentias termination of the First Right of Refusal Agreement, Biovest issued to Accentia 5 million new
shares of the Companys common stock with a fair value of $4.8 million on the date of the termination agreement. A charge to the Company of $4.8 million was recorded in Other Expense as a cost of terminating the agreement, and is included in
termination of related party anti-dilution agreement in the accompanying condensed consolidated statement of operations for the nine months ended June 30, 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company and Accentia entered into a Purchase Agreement whereby the Company purchased Accentias 70.5% ownership interest in Biolender, LLC
(Biolender). Biolender is the entity that was formed by Accentia and the Company to participate in the Companys New Market Tax Credit enhanced financing that closed in April 2006. In consideration of the sale of this interest
in Biolender, the Company agreed to issue to Accentia 10 million new shares of the Companys common stock, representing the negotiated value of the purchased interest. The Company accounted for the acquisition of this majority interest in
Biolender at Accentias $6.0 million historical cost due to the common control ownership of Accentia and the Company.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



9. Related Party Transactions (continued):



| |  |  | In order to consummate the foregoing transactions, the Company and Accentia were required to obtain the consent of Accentias senior lender, Laurus Master
Fund, Ltd. (Laurus), under Accentias loan agreement with Laurus. In consideration for providing such consent, the Company and Accentia entered into an agreement with Laurus pursuant to which Laurus consented to the above-described
transactions and certain other transactions, and Accentia issued to Laurus a warrant to purchase 10 million outstanding shares of the Companys common stock owned by Accentia at an exercise price of $.01 per share with a total fair value
of approximately $9.4 million. The warrant expires in October 2012. The Company was allocated from Accentia $8.8 million of the total $9.4 million based on the relative fair value of the transactions. The $8.8 million fair value allocated to the
Company has been recorded as a capital contribution in the Companys consolidated financial statements as of June 30, 2007. A portion of the warrants cost was also allocated to a provision in the consent whereby Accentia was allowed
to increase its inter-company loan with Biovest to a total of $9.6 million in order to facilitate the New Markets Tax Credit financing transaction (see Note 15). This allocation has been recorded as a financing fee in the statement of
operations for the nine months ended June 30, 2007. The $8.8 million charge was allocated as follows in the statement of operations:
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                               |  |   |          
|-------------------------------------------------------------- |  | - | ---------
|     Investment in Biolender LLC (immediately impaired)       |  | $ | 3,775,000
|     Loss on restructuring of related party royalty agreement |  |   | 1,887,000
|     Related party financing fee                              |  |   | 1,231,000
|     Termination of related party anti-dilution agreement     |  |   | 1,887,000
|                                                               |  |   |          
|                                                               |  | $ | 8,780,000
|                                                               |  |   |          

Warrants issued to related parties

In connection with the Southwest Bank Promissory Note dated June 26, 2007, as described in the above Note 6, the Company issued the guarantor of the Promissory Note, who is a director/officer of the
Companys majority owned parent, Accentia Biopharmaceuticals, Inc (Accentia) a warrant to purchase an aggregate total of 109,090 shares of the Companys Common Stock, par value $0.01 per share, at an exercise price of $1.10 per
share (the Warrant). The Warrant will expire on June 25, 2012.

10. Income taxes:

No provision for income taxes has been recorded for the nine months ended June 30, 2007 and 2006 due to the losses incurred during the periods. At June 30,
2007, the Company has net operating loss carry forwards of approximately $53.0 million available to offset future taxable income, which will begin to expire in 2020.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of the available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax
assets will not be realized. The Company has recorded a deferred tax asset valuation allowance of approximately $ 25.8 million, which fully offsets all deferred tax assets.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



11. Stock based compensation:

The fair value of each option award is estimated on the date of grant using the Black-Scholes 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 the Companys stock and 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. 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 June 30, 2007 are as follows:



|                                  |  |           |   |  |                       |      |                                 |      |                          |   |          
|--------------------------------- |  | --------- | - |  | --------------------- | ---- | ------------------------------- | ---- | ------------------------ | - | ---------
|                                  |  | Shares    |   |  | WeightedAverage Price |      | WeightedAverage ContractualLife |      | AggregateIntrinsic Value
|Outstanding at September 30, 2006 |  | 6,366,141 |   |  | $                     | 0.73 |                                 |      |                          |   |          
|Granted                           |  | 2,901,382 |   |  | $                     | 0.73 |                                 |      |                          |   |          
|Exercised                         |  | (15,000   | ) |  | $                     | 0.50 |                                 |      |                          |   |          
|Cancelled                         |  | (265,199  | ) |  | $                     | 0.82 |                                 |      |                          |   |          
|                                  |  |           |   |  |                       |      |                                 |      |                          |   |          
|Outstanding at June 30, 2007      |  | 8,987,324 |   |  | $                     | 0.73 |                                 | 7.46 |                          | $ | 1,053,412
|                                  |  |           |   |  |                       |      |                                 |      |                          |   |          
|Exercisable at June 30, 2007      |  | 7,450,559 |   |  | $                     | 0.75 |                                 | 7.18 |                          | $ | 936,768  
|                                  |  |           |   |  |                       |      |                                 |      |                          |   |          

Non-vested employee stock options:



|                                  |  |            |   |  |                                  |     
|--------------------------------- |  | ---------- | - |  | -------------------------------- | ----
|Non-vested Shares                 |  | Shares     |   |  | Weighted AvgGrant-DateFair Value
|Non-vested at September, 30, 2006 |  | 1,997,562  |   |  | $                                | 0.48
|Granted                           |  | 704,167    |   |  |                                  | 0.32
|Vested                            |  | (1,138,592 | ) |  |                                  | 0.44
|Cancelled                         |  | (26,372    | ) |  |                                  | 0.58
|                                  |  |            |   |  |                                  |     
|Non-vested at June 30, 2007       |  | 1,536,765  |   |  | $                                | 0.43
|                                  |  |            |   |  |                                  |     

Stock Warrants:



|                                  |  |            |   |  |                       |     
|--------------------------------- |  | ---------- | - |  | --------------------- | ----
|Warrants                          |  | Shares     |   |  | WeightedAverage Price
|Outstanding at September 30, 2006 |  | 17,298,126 |   |  | $                     | 0.20
|Issued                            |  | 4,564,086  |   |  |                       | 1.10
|Exercised                         |  | (171,321   | ) |  |                       | 0.02
|Cancelled                         |  | (150,346   | ) |  |                       | 3.21
|                                  |  |            |   |  |                       |     
|Outstanding at June 30, 2007      |  | 21,540,545 |   |  |                       | 0.37
|                                  |  |            |   |  |                       |     
|Exercisable at June 30, 2007      |  | 20,340,545 |   |  | $                     | 0.32
|                                  |  |            |   |  |                       |     



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



12. Derivative liability:

Changes to the Derivative liability are as follows:



|                                                                                |  |   |        
|------------------------------------------------------------------------------- |  | - | -------
|Balance, September 30, 2006                                                     |  | $ | 236,000
|Allocation of Laurus debt for New Market Tax Credit Transaction, December, 2006 |  |   | 131,000
|Loss on derivative                                                              |  |   | 174,000
|                                                                                |  |   |        
|Balance, June 30, 2007                                                          |  | $ | 541,000
|                                                                                |  |   |        

13. Segment information:

The Company operates in three identifiable industry segments. The Companys Cell Culture products and services 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, which has generated no revenues to date, is focused on developing BiovaxID, as described earlier.

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



|                            |  |                             |   |  |                            |   |  |           |   |  |           |  
|--------------------------- |  | --------------------------- | - |  | -------------------------- | - |  | --------- | - |  | --------- | -
|                            |  | Three Months Ended June 30, |   |  | Nine Months Ended June 30, |  
|                            |  | 2007                        |   |  | 2006                       |   |  | 2007      |   |  | 2006      |  
|Revenues                    |  |                             |   |  |                            |   |  |           |   |  |           |  
|Cell Culture Services       |  | 690,000                     |   |  | 893,000                    |   |  | 2,094,000 |   |  | 2,095,000 |  
|Instruments and Disposables |  | 716,000                     |   |  | 1,158,000                  |   |  | 2,191,000 |   |  | 3,315,000 |  
|                            |  |                             |   |  |                            |   |  |           |   |  |           |  
|Total Revenues              |  | 1,406,000                   |   |  | 2,051,000                  |   |  | 4,285,000 |   |  | 5,410,000 |  
|                            |  |                             |   |  |                            |   |  |           |   |  |           |  
|                            |  |                             |   | 
|Cost of Sales               |  |                             |   |  |                            |   |  |           |   |  |           |  
|Cell Culture Services       |  | 272,000                     |   |  | 639,000                    |   |  | 1,035,000 |   |  | 1,530,000 |  
|Instruments and Disposables |  | 410,000                     |   |  | 510,000                    |   |  | 1,265,000 |   |  | 1,457,000 |  
|                            |  |                             |   |  |                            |   |  |           |   |  |           |  
|Total Cost of Sales         |  | 682,000                     |   |  | 1,149,000                  |   |  | 2,300,000 |   |  | 2,987,000 |  
|                            |  |                             |   |  |                            |   |  |           |   |  |           |  
|                            |  |                             |   | 
|Gross Margin ($)            |  | 724,000                     |   |  | 902,000                    |   |  | 1,985,000 |   |  | 2,423,000 |  
|Gross Margin (%)            |  | 51                          | % |  | 44                         | % |  | 46        | % |  | 45        | %



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



14. Commitments and contingencies:

Legal proceedings:

The Company is involved with the litigation titled Biovest International, Inc. v. Excorp Medical,
Inc. This matter was instituted by the Company to effect collection of a debt owed to Biovest arising out of a prior litigation. The defendant has breached the settlement agreement and a default judgment in the amount of $567,647 was entered against
Excorp Medical. On March 21, 2007, Biovest and Excorp entered into a Forebearance Agreement whereby Biovest agreed to forebear from exercising its rights to collect the Judgment until June 30, 2007. We are unable to determine the
collectability of the judgment at this time.

The Company has been served with a summons and complaint filed in Delaware Superior Court on behalf of SPRI
International LLC for breach of contract for non-payment of certain fees for clinical trial studies and pass-through expenses in the amount of $183,000, which has been accrued for in the condensed consolidated balance sheet as of June 30, 2007.
Biovest has indicated that it intends to seek to dismiss this litigation and submit any claims involved in this matter to arbitration pursuant to a contractual arbitration clause. The Company intends to defend these claims vigorously.

From time to time the Company is subject to various legal proceedings in the normal course of business, some of which are covered by insurance.

Facility lease:

In connection with the New Market Tax Credit
transaction (Note 15) on December 8, 2006, the Company entered into a lease for a 24,000 square foot facility in St. Louis, Missouri, for the sole purpose of assembling and distributing the AutovaxID instrument. The lease, which has a base term
of approximately 3 years, calls for base rent payments of approximately $0.1 million annually, and provides a $12,000 allowance for tenant improvements.

Guarantee Indemnifications:

Under the terms of the January and March Pulaski notes payable, several board members and affiliates issued
personal guarantees. The Company agreed to indemnify and hold harmless each guarantor should their guarantees be called by the Lender by agreeing to compensate each affected guarantor by an issuance of restricted common stock equal to 700% of the
amount of their guarantee. The stock will be issued using a pre-determined value of $1.10 per share. The maximum amount to be issued by the Company in this regard is 20,045,455 shares of restricted common stock.

Under the terms of the Southwest Bank note payable issued June 26, 2007, an officer of Accentia, the majority shareholder of the Company, issued a personal
guarantee. The Company agreed to indemnify and hold harmless the guarantor should the guarantee be called by Southwest Bank by agreeing to reimburse the guarantor for any liabilities incurred associated with enforcement of the guarantee.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



15. New Market Tax Credit Transactions:

On April 25, 2006, the Company through its wholly owned subsidiary, Biovax, Inc. (Biovax) closed a financing transaction (Transaction I) that was structured in an effort to obtain certain
perceived advantages and enhancements from the New Markets Tax Credit (NMTC) regulations adopted under the auspices of the United States Department of the Treasury in 2002 to provide incentive for investing in businesses located in
qualifying census tracts, or areas with a median income below the poverty line. The NMTC was provided for in the Community Renewal Relief Act of 2000 (the Act) and permits taxpayers (whether companies or individuals) to claim
credits against their Federal income taxes for up to 39% of qualified investments in the equity of Community Development Entities (CDE). CDE are privately managed investment institutions that are certified to make Qualified Low-Income
Community Investments (QLICI). Biovax is a qualified, active low-income business and is eligible to receive investment capital under the NMTC regulations.

The following parties were involved in Transaction I: Accentia Biopharmaceuticals, Inc., Biovests majority shareholder (Accentia), Biolender, LLC (Biolender), Biovax Investment Corp.,
Biovax Investment, LLC (Fund), U.S. Bancorp Community Investment Corporation (US Bancorp), Telesis CDE Two, LLC (CDE), Telesis CDE Corporation, Biovax, Inc., and Laurus Master Fund, Ltd. (Laurus).

Previously, on March 31, 2006 in contemplation of the Transaction, Biovest closed a financing transaction with Laurus pursuant to which Laurus
purchased from Biovest a secured promissory note in the principal amount of $7,799,000 (the Laurus Note). Under the terms of the Laurus Note, $7.5 million of the principal amount was deposited into a restricted bank account of Biovest
(the Restricted Account) pursuant to a restricted account agreement between Biovest and Laurus. Accentia, Analytica International, Inc. (formerly The Analytica Group, Inc.) and Laurus also entered into an Amended and Restated Stock
Pledge Agreement pledging Accentias shares of TEAMM Pharmaceuticals, Inc., Analytica International, Inc., Biovest and others (including AutovaxID and Biolender II, who were added as obligors by way of joinder) to secure the obligations owed to
Laurus as a result of the Laurus Note and Transaction.

In contemplation of Transaction I, Biovest and Biovests parent company formed Biolender, LLC
as a Delaware limited liability company. On April 21, 2006, 2.5 million was released from the Restricted Account created under the Laurus Note. These proceeds were used to purchase a 29.5% equity investment in Biolender for $2.5 million.
Accentia used the proceeds of a $6.0 million intraday loan from First Bank to purchase the remaining 70.5% equity interest in Biolender. On April 27, 2006, the Company redeemed 10 million shares of its common stock owned of record by
Accentia for a $6.0 million cash payment which equaled the market price of $0.60 per share. Accentia used the proceeds of the stock redemption to repay its intraday loan due First Bank. Subsequently, on October 31, 2006, the Company entered
into a Purchase Agreement with Accentia whereby the Company purchased Accentias 70.5% ownership interest in Biolender. In consideration of the sale of this interest in Biolender, the Company issued to Accentia ten million shares of common
stock, representing the negotiated value of the purchased interest (Note 9).

In contemplation of Transaction I, Biovax Investment, LLC (the
Fund) was established. U.S. Bancorp invested $3.6 million for a 99% equity interest in the Fund. Biovax Investment Corp., the Fund manager, invested an additional $100 for the remaining 0.01% equity interest. On April 25, 2006,
Biolender loaned the Fund $8.5 million pursuant to a 5.18%, annual rate, senior secured, convertible note receivable, due October 27, 2013. Interest on the note is payable as follows: (i) 0.64% interest per annum, non-compounding, shall be
payable on the first day of each calendar month until October 27, 2013; and (ii) any remaining accrued and unpaid interest shall be payable in one installment on October 27, 2013. The note is convertible at the option of the fund into
shares of the Companys common stock near the maturity date.

The proceeds received by the Fund from the aforementioned financing transactions were
used to make a contemporaneous 99.99% equity investment in Telesis CDE II, LLC ($12 million) and payment for associated management, legal and accounting fees ($0.1 million). The $12 million investment by the Fund to the CDE constituted a qualified
equity investment (QEI) under the New Markets Tax Credit Program authorized by Section 45D of the Internal Revenue Code of 1986, as amended (the Code), resulting in $4.7 million in tax credits.



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



15. New Market Tax Credit Transactions (continued):



Telesis CDE II, LLC is a Community Development Entity that is certified through the U.S. Treasury Department to make
Qualified Low-Income Community Investments (QLICI), and is managed and partially owned (0.01%) by Telesis CDE Corporation, a private financial institution. Telesis CDE Corporation paid $1,200 in consideration for its 0.01% interest in
the CDE. Telesis CDE II, LLC, upon receipt of its equity funding, contemporaneously issued $11.5 million to Biovax for a 1.0% convertible promissory note payable, due October 27, 2013. The convertible promissory note is convertible into common
stock at the option of Telesis CDE II, LLC within 5 days of the maturity date at a conversion price equaling the then trading market price of the common stock. The overall arrangement provides that in the event Telesis CDE II, LLC converts the note
payable, the aforementioned note receivable is subject to immediate conversion at the same conversion price. The Company also issued to Telesis CDE Corporation warrants to purchase 1.2 million shares of the Companys common stock over a
period of nine-years at a fixed price of $1.30. These warrants are reflected as an equity financing cost in stockholders equity at a fair value of $517,000 computed using the Black-Scholes option pricing model. Accentia also issued warrants to
Telesis CDE Corporation to purchase 0.2 million shares of Accentias common stock over a period of seven years at a fixed price of $9.00.

Other
salient terms and conditions of Transaction I are as follows:



| |  |  | Under an Asset Purchase and Sale Agreement dated as of April 18, 2006, Biovest transferred all or substantially all of the assets of its vaccine manufacturing
business situated at 377 Plantation Street, Worcester, Massachusetts (the Plant and the assets hereinafter the Equipment) and its rights under that certain lease agreement for the Plant and that certain letter of intent with
the landlord to potentially lease additional space adjacent to the Plant (collectively the Leasehold) to Biovax. As full purchase price for the Equipment, Biovax paid Biovest $1.5 million and assumed certain liabilities, including a
portion of a demand note payable to Accentia. In addition, Biovax advanced rental payments for the Leasehold in the amount of $4.5 million. Under the Asset Purchase Agreement, the Company is required to treat the advance as unrestricted and
non-segregated funds provided that the Company uses the funds to make all required lease payments. Finally, Biovax also hired all of the Companys employees that are related to the vaccine manufacturing business and assumed responsibility for
all accrued vacation time and the maintenance of existing health and other benefits.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The tax credits arising from this transaction were fully assigned to US Bancorp. The Company, its subsidiaries and certain related parties have entered into an
indemnification agreement directly with US Bancorp that provides for indemnification in the event of tax credit recapture from events caused by the Company. Biovax, Inc., the Companys wholly owned subsidiary, is contractually required to
maintain the following covenants to avoid tax credit recapture: (i) Biovax shall maintain its status as a qualified active low-income business; (ii) At least fifty percent (50%) of the use of the tangible property of the Biovax
(whether owned or leased) will be within the low-income community as defined by Section 45D(e) of the U.S. Tax Code; (iii) At least fifty percent (50%) of the services performed for Biovax by its employees will be within low-income
community as defined by Section 45D(e) of the U.S. Tax Code; (iv) Less than five percent (5%) of the average of the unadjusted bases of the property of Biovax will be attributable to collectibles (as defined in Section 408(m)(2)
of the Code, and which includes any work of art; any rug or antique; any metal or gem; any stamp or coin; and any alcoholic beverage) other than collectibles that are held primarily for sale to customers in the ordinary course of business;
(v) Less than five percent (5%) of the average of the unadjusted bases of the property of Biovax will be attributable to nonqualified financial property (as defined in Section 1397C(e) of the Code and in
Section 1.45D-1(d)(4)(i)(E) of the Regulations, and which includes debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities and other similar property); (vi) No
part of the business activities of Biovax will consist of the operation of any private or commercial golf course, country club, massage parlor, hot tub facility, or suntan facility, race track or other facility used for gambling, or store the
principal business of which is the sale of alcoholic beverages for consumption off premises; (vii) No part of Biovaxs business activities will include the rental to others of residential rental property (the term residential rental
property is defined in Section 168(e)(2)(A) of the Code as meaning any building or structure if eighty percent (80%) or more of the gross rental income from such building or structure for the taxable year is rental income from
dwelling units); (viii) The predominant trade or business of Biovax will not include the development or holding of intangibles for sale or license, as provided under Section 1.45D-1(d)(5)(iii) of the Regulations; (ix) Farming (within
the meaning of Section 2032A(e)(5)(A) or (B) of the Code) will not be an activity of Biovax;
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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



15. New Market Tax Credit Transactions (continued):



| | (x) Biovax will generate revenues by the date of April 25, 2009; (xi) Biovax shall not discontinue conducting business, shall not materially change
the nature of its business, and shall not materially change the manner in which its business activities are conducted, other than changes in the nature of its business or the manner in which it conducts its business that do not cause the making of
the Loan by the Lender to cease to constitute a qualified low-income community investment as such term is used in Section 45D of the Code (as determined by the Lender in its good faith judgment and based upon the advice of counsel);
(xii) Biovax will not be a bank, credit union or other financial institution; (xiii) Biovax will not maintain a qualified low-income building under Section 42 of the Code; (xiv) Biovax will not become a single-member entity
treated as disregarded as separate from its owner for federal income tax purposes, nor be liquidated or merged into another entity without the written consent of Telesis CDE II, LLC; and (xv) Biovax and Biovest will operate consistently with
the Asset Purchase and Sale Agreement between Biovax and Biovest, and will not amend such agreement without prior written consent of Telesis CDE II, LLC. An example of an event that would not cause a recapture is changes in the Internal Revenue Code
that results in such recapture. The total indemnification amount could be $4.7 million (representing 39% of the $12.0 million qualified investment). However, in accordance with Financial Interpretation 45 Guarantors Accounting and Disclosure
Requirements for Guarantees, including Indirect Guarantees of the Indebtedness of Others, the conditions and events that could result in recapture are within the Companys control. Therefore, this potential liability is not reflected in the
financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the NMTC financing, the Company and US Bancorp entered into a put option wherein US Bancorp will have the right to put its investment in the Fund
to the Company near the maturity of the instruments at a price of $180,000. The Company has concluded that this contract constitutes a derivative liability that requires accounting recognition at fair value. The Company utilized a probability-based,
discounted cash flow approach to value the put. In applying this technique, the Company, on the inception date, concluded that it was probable that US Bancorp would exercise their contractual right to put the investment. Accordingly, the valuation
technique provided for the recognition of the full put amount ($180,000) at the present value of its cash flows, using market interest rates that would likely be considered by market participants trading similar instruments. The present value
associated with the put option and included in derivative liability in the June 30, 2007 balance sheet is approximately $95,000.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company, its subsidiaries and certain related parties have entered into a guarantee arrangement with Telesis CDE II, Inc. for the debt service of Biovax. In
addition, Accentia has partially guaranteed debt service with limitations established at no greater than $60,000 each year the instrument is outstanding. The Company issued warrants to purchase 1.0 million shares of common stock to the related
parties as compensation for their guarantees. The guarantees were treated in a manner similar to contributed service and their fair value of $460,000 was charged to expense upon issuance. The Company also indemnified the guarantors from any claims
of any kind to the extent that the guarantors are called upon to pledge funds, assets or collateral in connection with the guarantee being executed.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Various legal and accounting fees of $757,000 involved in structuring this transaction were recorded as deferred financing costs and prepaid expenses and will be
amortized over a period of seven and one half years, representing the duration of both convertible notes issued by the Fund and Biovax, Inc.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On December 8, 2006, the Company through its wholly owned subsidiary, AutovaxID, Inc. (AutovaxID) closed a second New Market Tax Credit financing transaction (Transaction II). The following parties were involved
in Transaction II: AutovaxID, Accentia, Biolender II, LLC (Biolender II), St. Louis New Market Tax Credit Fund II, LLC, St. Louis Development Corp., AutovaxID Investment LLC (Leverage Fund), U.S. Bancorp, and Laurus.



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



15. New Market Tax Credit Transactions (continued):



On December 8, 2006, Accentia loaned to Biovest $3.1 million pursuant to a Secured Promissory Note (the
Accentia Note). Under the terms of the Accentia Note, interest shall accrue at a rate equal to prime rate, payable upon demand of Accentia. Biovest shall pay principal and interest as follows: (a) $1.1 million was paid to Accentia
upon the closing of the Transaction and (b) the remaining $2.0 million of principal and all accrued and unpaid interest shall be paid by Biovest upon demand by Accentia.

In contemplation of Transaction II, Biovest formed Biolender II, LLC as a Delaware limited liability company. On December 8, 2006, $2.5 million was released from the Restricted Account created under the Laurus
Note, which together with the amount loaned to Biovest under the Accentia Note funded the purchase of a 100% equity interest in Biolender II for the benefit of Biovest. The entire equity interest of $5.6 million in Biolender II owned by Biovest has
been pledged to Laurus as collateral to secure the Laurus Note.

In contemplation of Transaction II, AutovaxID Investment, LLC was established. U.S.
Bancorp invested $2.4 million for a 100% equity interest in the Leverage Fund. Additionally, Biolender II and the Leverage Fund entered into a Loan and Security Agreement pursuant to which Biolender II made a loan to the Leverage Fund in the
principal amount of $5.6 million (the Leverage Loan), evidenced by a promissory note dated December 8, 2006 payable from the Leverage Fund to Biolender II (the Leverage Note). The Leverage Note becomes due on
June 9, 2014, and bears an interest rate of 8%, non-compounding. Payment of interest is due annually on the first calendar day of each year through maturity. The outstanding principal amount on the Leverage Loan and any unpaid interest is due
on maturity in cash.

The proceeds received by the Leverage Fund from U.S. Bancorp and Biolender II were used to make a contemporaneous 99.99% equity
investment in St. Louis New Market Tax Credit Fund II, LLC. The $8.0 million investment by the Leverage Fund to St. Louis New Market Tax Credit Fund II, LLC constituted a qualified equity investment (QEI) under the New Markets Tax Credit
Program authorized by Section 45D of the Internal Revenue Code of 1986, as amended, resulting in $3.12 million in tax credits which were allocated to U.S. Bancorp. All of the Leverage Funds interest in St. Louis New Market Tax Credit Fund
II, LLC has been pledged to Biolender II as collateral for the Leverage Loan.

St. Louis New Market Tax Credit Fund II, LLC is a Community Development
Entity (CDE) that is certified through the U.S. Treasury Department to make Qualified Low-Income Community Investments (QLICI), and is managed and partially owned (0.01%) by St. Louis Development Corporation, a not-for-profit
corporation organized in Missouri. St. Louis Development Corporation paid $1,000 in consideration for its 0.01% interest in the CDE. St. Louis New Market Tax Credit Fund II, LLC, upon receipt of its equity funding, contemporaneously issued a QLICI
to AutovaxID, evidenced by a $7.7 million Subordinated Promissory Note dated as of December 8, 2006 and described in more detail below.

Other
salient terms and conditions of Transaction II are as follows:



| |  |  | Under a License and Asset Purchase Agreement dated as of December 8, 2006, Biovest granted a nonexclusive license to the intellectual property enabling
AutovaxID to manufacture and sell automated cell culture instruments in the United States, Canada and Mexico (the License), which license became exclusive upon the occupancy by AutovaxID of a space located at 1031 Macklind Avenue, St.
Louis, Missouri (the New Plant) in June 2007. As full purchase price for the License and related business opportunity, AutovaxID paid Biovest $5.6 million. Biovest also agreed to sell AutovaxID certain equipment upon the occupancy by
AutovaxID of the New Plant for the fair market value of $0.5 million.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The CDE Loan has a principal amount of $7.7 million and matures on December 8, 2036. Pursuant to a call right, for a period of six months starting on
December 8, 2013, the CDE will have the right to call for the repayment of the CDE Loan in the amount of $5.7 million, in full satisfaction of the principal on the CDE Loan. Interest on the outstanding principal amount of the CDE Loan shall
accrue at the rate of 5.82% per annum, non-compounding and shall be payable in arrears on an annual basis commencing on January 2, 2007 and continuing until maturity. The CDE Loan is guaranteed by Biovest.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



15. New Market Tax Credit Transactions (continued):



| |  |  | The CDE Loan is secured by second lien on all assets of AutovaxID for the benefit of the CDE pursuant to a Second-Lien Security Agreement between AutovaxID and the
CDE dated as of December 8, 2006. Laurus has a senior lien on the assets of AutovaxID through the security agreement from Biovest to Laurus, which AutovaxID joined by way of a Joinder Agreement.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The CDE Loan shall be due and payable by AutovaxID in full on the maturity date of the CDE Loan. However, if the CDE exercises its call right pursuant to the CDE
Loan, then the CDE Loan becomes due and payable on the date of such call for the amount of $5.7 million, in full satisfaction of the principal on the CDE Loan, together with all accrued but unpaid interest.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | AutovaxID does not have the right to prepay the CDE Loan prior to June 8, 2014. AutovaxID does have the right to prepay the CDE Loan after this date, provided
that (i) it prepays the entire CDE Loan amount, (ii) the CDE consents to such prepayment and USBCIC and the managing member of the CDE agree on the reinvestment of such proceeds in an alternative investment that would qualify as a QLICI
and (iii) AutovaxID or the Individual Guarantors (as defined below) under the Tax Credit and Reimbursement and Indemnity Agreement pay to USBCIC the recapture amount so specified is such agreement.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All indebtedness owed by AutovaxID and its subsidiaries to the CDE, including its right to receive payments of principal and interest under the CDE Loan, is
expressly subordinate to the extent set forth under the Telesis Subordination Agreement dated as of December 8, 2006 entered into by Laurus, the CDE, USBCIC, AutovaxID and Biovest.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The tax credits arising from this transaction were fully assigned to US Bancorp. The Company, its subsidiaries and certain related parties have entered into an
indemnification agreement directly with US Bancorp that provides for indemnification in the event of tax credit recapture from events caused by the Company. AutovaxID, Inc., the Companys wholly owned subsidiary, is contractually required to
maintain the following covenants to avoid tax credit recapture: (i) AutovaxID shall maintain its status as a qualified active low-income business; (ii) At least fifty percent (50%) of the use of the tangible property of the AutovaxID
(whether owned or leased) will be within the low-income community as defined by Section 45D(e) of the U.S. Tax Code; (iii) At least fifty percent (50%) of the services performed for AutovaxID by its employees will be within low-income
community as defined by Section 45D(e) of the U.S. Tax Code; (iv) Less than five percent (5%) of the average of the unadjusted bases of the property of AutovaxID will be attributable to collectibles (as defined in
Section 408(m)(2) of the Code, and which includes any work of art; any rug or antique; any metal or gem; any stamp or coin; and any alcoholic beverage) other than collectibles that are held primarily for sale to customers in the ordinary course
of business; (v) Less than five percent (5%) of the average of the unadjusted bases of the property of AutovaxID will be attributable to nonqualified financial property (as defined in Section 1397C(e) of the Code and in
Section 1.45D-1(d)(4)(i)(E) of the Regulations, and which includes debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities and other similar property); (vi) No
part of the business activities of AutovaxID will consist of the operation of any private or commercial golf course, country club, massage parlor, hot tub facility, or suntan facility, race track or other facility used for gambling, or store the
principal business of which is the sale of alcoholic beverages for consumption off premises; (vii) No part of AutovaxIDs business activities will include the rental to others of residential rental property (the term residential
rental property is defined in Section 168(e)(2)(A) of the Code as meaning any building or structure if eighty percent (80%) or more of the gross rental income from such building or structure for the taxable year is rental income from
dwelling units); (viii) The predominant trade or business of AutovaxID will not include the development or holding of intangibles for sale or license, as provided under Section 1.45D-1(d)(5)(iii) of the Regulations; (ix) Farming
(within the meaning of Section 2032A(e)(5)(A) or (B) of the Code) will not be an activity of AutovaxID; (x) AutovaxID will generate revenues by the date of December 8, 2009; (xi)AutovaxID shall not discontinue conducting
business, shall not materially change the nature of its business, and shall not materially change the manner in which its business activities are conducted, other than changes in the nature of its business or the manner in which it conducts its
business that do not cause the making of the Loan by the Lender to cease to
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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



15. New Market Tax Credit Transactions (continued):



| | constitute a qualified low-income community investment as such term is used in Section 45D of the Code (as determined by the Lender in its
good faith judgment and based upon the advice of counsel); (xii) AutovaxID will not be a bank, credit union or other financial institution; (xiii) AutovaxID will not maintain a qualified low-income building under Section 42 of the
Code; (xiv) AutovaxID will not become a single-member entity treated as disregarded as separate from its owner for federal income tax purposes, nor be liquidated or merged into another entity without the written consent of St. Louis New Market
Tax Credit Fund II, LLC; and (xv) AutovaxID and Biovest will operate consistently with the License and Asset Purchase Agreement between AutovaxID and Biovest, and will not amend such agreement without prior written consent of St. Louis New
Market Tax Credit Fund II, LLC. An example of an event that would not cause a recapture is changes in the Internal Revenue Code that results in such recapture. The total indemnification amount could be $3.12 million (representing 39% of the $8.0
million qualified investment). However, in accordance with Financial Interpretation 45 Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of the Indebtedness of Others, the conditions and events
that could result in recapture are within the Companys control. Therefore, this potential liability is not reflected in the financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the NMTC financing, the Company and U.S. Bancorp entered into a put option wherein US Bancorp will have the right to put its investment in the
Fund to the Companys subsidiary, Biolender II starting on December 9, 2013 and ending three months thereafter at a price of $120,000. Furthermore, under a Purchase Option Agreement, for a three month period after the expiration of the put
option and to the extent that the put option was not exercised, Biolender II will have the option to purchase U.S. Bancorps equity interests in the Leverage Fund based on the fair market value of the equity interests at that time. The Company
has concluded that this contract constitutes a derivative liability that requires accounting recognition at fair value. The Company utilized a probability-based, discounted cash flow approach to value the put. In applying this technique, the
Company, on the inception date, concluded that it was probable that US Bancorp would exercise their contractual right to put the investment. Accordingly, the valuation technique provided for the recognition of the full put amount ($120,000) at the
present value of its cash flows, using market interest rates that would likely be considered by market participants trading similar instruments. The present value associated with the put option and included in the derivative liability in the
June 30, 2007 balance sheet is approximately $59,000.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company, its subsidiaries and certain related parties have entered into a guarantee arrangement with St. Louis New Markets Tax Credit Fund II, LLC for the debt
service of AutovaxID. The Company issued warrants to purchase 2.6 million shares of common stock to the related parties as compensation for their guarantees. The guarantees were treated in a manner similar to contributed service and their fair
value of $1.4 million was charged to expense upon issuance. The Company also indemnified the guarantors from any claims of any kind to the extent that the guarantors are called upon to pledge funds, assets or collateral in connection with the
guarantee being executed.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Various legal and accounting fees of $764,000 involved in structuring this transaction were recorded as deferred financing costs and prepaid expenses and will be
amortized over a period of seven and one half years, representing the duration of the note issued by AutovaxID Investment, LLC and payable to Biolender II, LLC.
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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



16. Variable Interest Entities:

Accounting for the NMTC financing arrangement:

The Company evaluated the structure of the NMTC financing
arrangements and entities so involved under the context of FIN46. FIN46 provides a framework for determining whether certain entities should be consolidated (irrespective of equity ownership) based upon a variable interests model. This model
determines the control and consolidation based upon potential variability in gains and losses of the entity being evaluated for consolidation. Generally, a variable interest holder that absorbs a majority of the entitys expected losses, if
they occur, receives a majority of the entitys expected residual return, if they occur, or both is identified as the primary beneficiary for consolidation purposes.

The Company concluded that Biovax Investment, LLC, Telesis CDE Two, LLC, Autovax Investment, LLC and St. Louis New Market Tax Credit Fund II, LLC met the definition of variable interest entity. However, for the
Company to be required to apply the provisions of the Interpretation, it must have a variable interest in the entity. Variable interests in a variable interest entity are contractual, ownership or other monetary interests in an entity that change
with changes in the value of the net assets of the entity. The following tables illustrate the variable interests have been identified in each of the entities considered by the Company and the related holder:

New Market Tax Credit Transaction I:



|                                |  |                                                                                                            |  |                                               
|------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|Variable Interest Holder        |  | Variable Interests Biovax Investment, LLC                                                                  |  | Variable Interests Telesis CDE Two, LLC       
|Biovest and its Related Parties |  | Senior beneficial interest Guaranty Agreement
Indemnification Agreement Put (VIE Equity) Call (VIE Equity) |  | Senior beneficial interest Guarantee
Agreement
|                                |  |                                                                                                           
|Biovax Investment, LLC          |  |                                                                                                            |  | VIE Equity (99.9%)                            
|                                |  |                                                                                                           
|US Bancorp                      |  | VIE Equity (99.9%)                                                                                         |  | Tax Credit Rights                             
|                                |  |                                                                                                           
|Biovax Investment Corp.         |  | VIE Equity (0.01%)                                                                                         |  |                                               
|                                |  |                                                                                                           
|Telesis CDE, Corp               |  |                                                                                                            |  | VIE Equity (0.01%)                            

New Market Tax Credit Transaction II:



|                                  |  |                                                                                                            |  |                                               
|--------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|Variable Interest Holder          |  | Variable Interests AutovaxID Investment, LLC                                                               |  | Variable Interests St. Louis NMTC Fund II, LLC
|Biovest and its Related Parties   |  | Senior beneficial interest Guaranty Agreement
Indemnification Agreement Put (VIE Equity) Call (VIE Equity) |  | Senior beneficial interest Guarantee
Agreement
|                                  |  |                                                                                                           
|AutovaxID Investment, LLC         |  |                                                                                                            |  | VIE Equity (99.9%)                            
|                                  |  |                                                                                                           
|US Bancorp                        |  | VIE Equity (100%)                                                                                          |  | Tax Credit Rights                             
|                                  |  |                                                                                                           
|St. Louis Development Corporation |  |                                                                                                            |  | VIE Equity (0.01%)                            

The above table illustrates the weight of the variable interests that are held by the Company. In addition, in
performing quantitative valuation, the Company afforded significant weight to the guarantee agreements, indemnifications and put features, the preponderance of which limit the equity investors risk of loss on the venture. In evaluating both
qualitative and quantitative considerations, the Company has concluded that its variable interests in the entity absorb most of the entities losses and should, therefore, consolidate the entities under the scope of FIN46.



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)



16. Variable Interest Entities (continued):



Assets of $20.2 million and liabilities of $14.8 million of the variable interest entities identified above, are
limited to the instruments referred to in the description of the NMTC financing arrangement above. In accordance with consolidation principles, these assets and liabilities are eliminated in consolidation leaving the non-controlling interests of US
Bancorp, Telesis CDE Corp, Biovax Investment Corp, and St. Louis Development Corporation, reflected on the Companys June 30, 2007 condensed consolidated balance sheet as non controlling interests in variable interest entities.

The Companys $590,000 non-controlling interest in losses from variable interest entities on it consolidated statement of operations for the nine months ended
June 30, 2007 consists of the following:



|                            |  |                   |          |  
|--------------------------- |  | ----------------- | -------- | -
|Variable Interest Entity    |  | Net (Income)/Loss |         
|Biovax Investment LLC       |  | $                 | 585,000  |  
|Telesis CDE Two, LLC        |  |                   | (9,000   | )
|AutovaxID Investment, LLC   |  |                   | 250,000  |  
|St. Louis NMTC Fund II, LLC |  |                   | (236,000 | )
|                            |  |                   |          |  
|                            |  | $                 | 590,000  |  
|                            |  |                   |          |  

17. Subsequent Events:

Effective as of July 5, 2007, the Company entered into a renewal and extension of the maturity date of the Promissory Note dated January 5, 2007 to Pulaski Bank. This Promissory Note, which had an original maturity date
of July 5, 2007, now matures on September 5, 2007. The Company agreed to pay $25,000 in cash as well as to issue warrants to purchase 85,710 shares of the Companys common stock with a five-year term
and an exercise price of $1.10 per share to Pulaski Bank in consideration for this extension. The note can be prepaid by the Company at any time without penalty. The note bears interest at the prime rate minus .05% (7.75% per annum at
June 30, 2007), requiring monthly payments of interest only. All other terms of the Promissory Note dated January 5, 2007 remain the same as disclosed in Note 6.

Effective as of July 21, 2007, the Company entered into a renewal and extension of the maturity date of the Promissory Note dated April 22, 2007 to Pulaski Bank. This Promissory Note, which had an
original maturity date of May 21, 2007, now matures on September 21, 2007. The Company agreed to pay $18,750 in cash as well as to issue warrants to purchase 64,290 shares of the Companys common stock with a
five-year term and an exercise price of $1.10 per share to Pulaski Bank in consideration for this extension. The note bears interest at the prime rate minus .05% (7.75% per annum as of June 30, 2007), with interest only payments due
monthly. All other terms of the Promissory Note dated April 22, 2007 remain the same as disclosed in Note 6.

Effective as of
August 12, 2007, the Company terminated the Employment Agreement of Carl M. Cohen, Ph.D., the Companys Chief Operating Officer. In accordance with the terms of his employment agreement, Dr. Cohen will receive termination
compensation in the amount of his base salary for a period of six months along with continuation of insurance benefits.



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

Overview

Our major focus has become the development of our
personalized therapeutic cancer vaccine for the treatment of low-grade Follicular Lymphoma (FL), which we have named BiovaxID®. FL is a deadly cancer of the white blood cells. This
therapeutic vaccine is currently in a pivotal Phase 3 clinical trial. In September 2001, we entered into a Cooperative Research and Development Agreement (CRADA) with the NCI regarding the development of this therapeutic vaccine. In April 2004, the
Investigational New Drug application (IND) for BiovaxID® was transferred to us from the NCI. In May 2006, the FDA notified us that the FDA has granted fast track
status to BiovaxID and further notified us of the approval of our request to utilize molecular remissions data as a new secondary endpoint in our ongoing clinical trial of BiovaxID. The Company terminated the CRADA with NCI on September 25,
2006. Included in this transaction was the termination of the NCIs responsibility of the trial safety and monitoring oversight by the NCI Data Safety and Monitoring Board (DSMB). A new Data Monitoring Committee (DMC) has been established for
the BiovaxID clinical trials. The current independent DMC is composed of two physicians with oncology training and experience, and one biostatistician trained and experienced in clinical trials data analysis.

On June 2, 2007 the DMC met to review all data for the BiovaxID Phase 3 pivotal efficacy study. Following this meeting, the Company notified the DMC of its intent
to seek Conditional Approval with the U.S. Food and Drug Administration (FDA) and its European counterpart, the European Medicines Agency (EMEA). The next regularly scheduled meeting of the DMC is planned for September 2007, at which point they will
be provided with an updated data set for review. The company plans to seek conditional approval based on the pre-clinical and clinical Phase 2 and ongoing Phase 3 data supporting its highly favorable risk-benefit profile, driven in large part by its
exemplary safety record, and evidence of efficacy to date in the treatment of FL. If conditionally approved by the target date of mid-June 2008, the Company would anticipate commencing commercial sales and marketing of BiovaxID by early 2009.
Conditional approval would require the Company to complete the ongoing Phase 3 study as a condition to continued marketing of BiovaxID. See Note 3 to the condensed consolidated financial statements for additional discussion of the ongoing clinical
trial.

We 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 have developed an automated cell production instrument, AutovaxID, which we plan
to use in the production of BiovaxID vaccines and began marketing on a commercial basis in December 2006. Delivery of the new instruments began in March 2007. On June 8, 2007 the Company entered into a Non-Exclusive Distribution Agreement with
VWR International, Inc. (VWR) to market and distribute the AutovaxID instrument. VWR will commence its sales and marketing efforts in September 2007.

The Company also produces 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. Prior to September 2005, we were designated as the National Cell Culture Center NCCC under a grant from the National Institutes of Health and from September 2005 through June 30, 2006, we
continued to provide the same services under an interim grant. We have discontinued activities as the designated NCCC and we have integrated these activities into our commercial contract manufacturing business.

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 require us to make significant estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, expenses and 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.



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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 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 driven by a pre-determined production run. The duration
of our cell culture production contracts range typically from 2 to 14 months.

We maintain allowances for doubtful accounts 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.

The Company accounts for stock-based compensation based on the Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), Share-Based Payment (SFAS 123R) 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 the
Company has a controlling financial interest or has been determined to be the primary beneficiary under Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46).
All significant inter-company balances and transactions have been eliminated.

Results of Operations

Revenues. Total revenues for the three and nine months ended June 30, 2007 were $1.4 million and $4.3 million respectively, which represents a
decrease of $0.6 million or 31% over the three months ended June 30, 2006, and a decrease of $1.1 million or 21% over the nine months ended June 30, 2006. This decrease is primarily attributable to a decrease in sales of our cell culture
instrumentation and disposables. The nine months ended June 30, 2006 included the sale of three Xcellerator units, the largest model in our line of cell culture instrumentation compared to only one sale of this instrument for the same period
ending June 30, 2007. Sales from our contract manufacturing of biologic drugs and cell production were similar year over year.

Gross
Margin. The overall gross margin as a percentage of sales for the three months ended June 30, 2007 increased from 44% to 51% compared to the same period in fiscal 2006. This increase is attributable primarily to the mix of
revenues derived from cell culture services versus instrumentation sales. The gross margin for the nine months ended June 30, 2007 increased slightly from 45% to 46%.



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Operating Expenses. Research and development expenses decreased by $0.6 million or 19% for the three months
ended June 30, 2007 and increased $0.2 million or 2% for the nine months ended June 30, 2007 compared to the same periods in 2006. While the company expanded on the number of sites participating in the BiovaxID clinical trial during the
first six months of fiscal 2007, the company reduced the scope of testing for the quarter ended June 30, 2007 due in part to limited availability of funds to meet to costs of continued patient enrollment as well as in anticipation of the
Companys intent to file for conditional approval with the FDA and EMEA as discussed above. General and administrative expenses decreased $0.5 million for the three months ended June 30, 2007. This decrease results from the
cancellation of a discretionary bonus accrued for full time employees as the Company sought to reduce cash expenditures until additional sources of financing have been secured. General and administrative expenses increased $0.9 million for the nine
months ended June 30, 2007 compared with the nine months ended June 30, 2006. This increase is attributed primarily to an overall increase in staffing levels, an increase in professional fees rendered in connection with the New Markets Tax
Credit Transaction discussed in Note 15 to the condensed consolidated financial statements, as well as professional fees associated with pursuing additional financing alternatives.

As discussed in Note 9 to the condensed consolidated financial statements, $3.8 million was charged as an operating expense related to Laurus consent to the Companys purchase of Accentias interest in
Biolender, and $6.6 million was charged as an operating expense in connection with the restructuring of the Companys royalty agreement with Accentia.

Other Income (Expense). As discussed in Note 8 to the financial statements, other expense includes a $9.7 million loss incurred upon extinguishment of debt with Laurus Master Funds, Inc. Also included and discussed in further
detail in Note 9 to the financial statements is a $6.6 million loss incurred upon termination of the anti-dilution agreement with Accentia and a $1.2 million charge related to obtaining a consent from one of Accentias lenders to permit
additional advances to the Company by Accentia. Other expense for the three and nine months ended June 30, 2007 and 2006 also includes contractual interest charges and amortization of discounts regarding the Laurus Financing, interest on our
demand notes to Accentia, interest on our unsecured promissory notes from Pulaski Bank, interest on our unsecured promissory note from Southwest Bank, interest on other long-term debt, and short-term loans from affiliates. Total interest expense for
the three months ended June 30, 2007 and 2006 was $0.5 million and $1.3 million respectively. Total interest expense for the nine months ended June 30, 2007 and 2006 was $4.1 million and $1.5 million respectively. In addition, other
expense for the first nine months of fiscal 2007 includes a $174,000 loss on derivative liabilities. As the derivative did not exist during the first nine months of fiscal 2006, there is no comparable loss.

Non-Controlling interest in earnings from variable interest entities. Other income also includes a $0.6 million non-controlling interest in the losses of
the variable interest entities resulting from the consolidation of a number of variable interests formed as a result of the New Market Tax credit transaction discussed in Notes 15 and 16 of the condensed consolidated financial statements.



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Liquidity and Capital Resources

The Company has historically had significant losses from operations and these losses continued during the three months ended June 30, 2007 resulting in a net operating cash flow deficit of $2.0 million. At
June 30, 2007 the Company had an accumulated deficit of approximately $93.7 million and working capital deficit of approximately $24.5 million. At June 30, 2007, the Company had $0.3 million in cash of which the Company had allocated $0.2
million to the establishment and start-up of its new facility dedicated to the manufacture of AutovaxID instruments. As of August 14, 2007 certain principal and interest payments due to Laurus had not been made when due, although no default has
been declared by Laurus on these obligations as of this time. The Company 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
and short-term borrowings (primarily from affiliates), as well as the sale of stock to and inter-company demand notes from Accentia. Since 2003, Accentia has been a primary source of financing for the Company; however, the Company has been informed
by Accentia that provisions of certain of its loan and debenture financing agreements preclude Accentia from making any additional direct cash contributions to the Company. Accordingly, the Companys ability to continue present operations and
to continue its ongoing clinical trial is dependent upon the Companys ability to obtain significant external funding from sources other than Accentia, which raises substantial doubt about the Companys ability to continue as a going
concern. The need for funds is expected to grow as we continue our trials and our efforts to commercialize both BiovaxID and AutovaxID.

Additional sources
of funding have not been established; however, additional financing is currently being sought by the Company from a number of sources other than Accentia, including the sale of equity or debt securities, strategic collaborations, recognized research
funding programs, as well as domestic and/or foreign licensing of our vaccine. Management is currently in the process of exploring various financing alternatives, and has hired investment banking firms to assist in these efforts. There can be no
assurance that we will be successful in securing such financing at acceptable terms, if at all. If adequate financing is not established 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 business units that are non-essential to the ongoing development or future commercialization of BiovaxID and AutovaxID. If adequate financing is not established and if other
strategic financing options are not available, 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 and the company may
not be able to continue as a going concern.

During the three and nine months ended June 30, 2007, we received net advances of $0.8 million and $5.2
million respectively, from Accentia. The Companys total net advances in excess of the $20 million investment agreement aggregated $10.0 million as of June 30, 2007, consisting of cash loans, payments directly to third parties and
allocated inter-company expenses, accrued interest, and amounts owed in connection with the conversion of notes outstanding at the time of Accentias initial investment in the Company in June 2003. The $10.0 million is evidenced by three
secured promissory demand notes.



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New Market Tax Credit Transactions:

On April 25, 2006, the Company through its wholly owned subsidiary, Biovax, Inc. (Biovax) closed a financing transaction (Transaction I) that was structured in an effort to obtain certain
perceived advantages and enhancements from the New Markets Tax Credit (NMTC) regulations adopted under the auspices of the United States Department of the Treasury in 2002 to provide incentive for investing in businesses located in
qualifying census tracts, or areas with a median income below the poverty line. The NMTC was provided for in the Community Renewal Relief Act of 2000 (the Act) and permits taxpayers (whether companies or individuals) to claim
credits against their Federal income taxes for up to 39% of qualified investments in the equity of Community Development Entities (CDE). CDE are privately managed investment institutions that are certified to make Qualified Low-Income
Community Investments (QLICI). Biovax is a qualified, active low-income business and is eligible to receive investment capital under the NMTC regulations.

The following parties were involved in Transaction I: Accentia Biopharmaceuticals, Inc., Biovests majority shareholder (Accentia), Biolender, LLC (Biolender), Biovax Investment Corp.,
Biovax Investment, LLC (Fund), U.S. Bancorp Community Investment Corporation (US Bancorp), Telesis CDE Two, LLC (CDE), Telesis CDE Corporation, Biovax, Inc., and Laurus Master Fund, Ltd. (Laurus).

Previously, on March 31, 2006 in contemplation of the Transaction, Biovest closed a financing transaction with Laurus pursuant to which Laurus
purchased from Biovest a secured promissory note in the principal amount of $7,799,000 (the Laurus Note). Under the terms of the Laurus Note, $7.5 million of the principal amount was deposited into a restricted bank account of Biovest
(the Restricted Account) pursuant to a restricted account agreement between Biovest and Laurus. Accentia, Analytica International, Inc. (formerly The Analytica Group, Inc.) and Laurus also entered into an Amended and Restated Stock
Pledge Agreement pledging Accentias shares of TEAMM Pharmaceuticals, Inc., Analytica International, Inc., Biovest and others (including AutovaxID and Biolender II, who were added as obligors by way of joinder) to secure the obligations owed to
Laurus as a result of the Laurus Note and Transaction.

In contemplation of Transaction I, Biovest and Biovests parent company formed Biolender, LLC
as a Delaware limited liability company. On April 21, 2006, 2.5 million was released from the Restricted Account created under the Laurus Note. These proceeds were used to purchase a 29.5% equity investment in Biolender for $2.5 million.
Accentia used the proceeds of a $6.0 million intraday loan from First Bank to purchase the remaining 70.5% equity interest in Biolender. On April 27, 2006, the Company redeemed 10 million shares of its common stock owned of record by
Accentia for a $6.0 million cash payment which equaled the market price of $0.60 per share. Accentia used the proceeds of the stock redemption to repay its intraday loan due First Bank. Subsequently, on October 31, 2006, the Company entered
into a Purchase Agreement with Accentia whereby the Company purchased Accentias 70.5% ownership interest in Biolender. In consideration of the sale of this interest in Biolender, the Company issued to Accentia ten million shares of common
stock, representing the negotiated value of the purchased interest (Note 9).

In contemplation of Transaction I, Biovax Investment, LLC (the
Fund) was established. U.S. Bancorp invested $3.6 million for a 99% equity interest in the Fund. Biovax Investment Corp., the Fund manager, invested an additional $100 for the remaining 0.01% equity interest. On April 25, 2006,
Biolender loaned the Fund $8.5 million pursuant to a 5.18%, annual rate, senior secured, convertible note receivable, due October 27, 2013. Interest on the note is payable as follows: (i) 0.64% interest per annum, non-compounding, shall be
payable on the first day of each calendar month until October 27, 2013; and (ii) any remaining accrued and unpaid interest shall be payable in one installment on October 27, 2013. The note is convertible at the option of the fund into
shares of the Companys common stock near the maturity date.

The proceeds received by the Fund from the aforementioned financing transactions were
used to make a contemporaneous 99.99% equity investment in Telesis CDE II, LLC ($12 million) and payment for associated management, legal and accounting fees ($0.1 million). The $12 million investment by the Fund to the CDE constituted a qualified
equity investment (QEI) under the New Markets Tax Credit Program authorized by Section 45D of the Internal Revenue Code of 1986, as amended (the Code), resulting in $4.7 million in tax credits.

Telesis CDE II, LLC is a Community Development Entity that is certified through the U.S. Treasury Department to make Qualified Low-Income Community Investments
(QLICI), and is managed and partially owned (0.01%) by Telesis CDE Corporation, a private financial institution. Telesis CDE Corporation paid $1,200 in consideration for its 0.01% interest in the CDE. Telesis CDE II, LLC, upon receipt of
its equity funding, contemporaneously issued $11.5 million to Biovax for a 1.0% convertible promissory note payable, due October 27, 2013. The convertible promissory note is convertible into common stock at the option of Telesis CDE II, LLC
within 5 days of the maturity date at a conversion price equaling the then trading market price of the common stock. The overall arrangement provides that in the event Telesis CDE II, LLC converts the note payable, the aforementioned note receivable
is subject to immediate conversion at the same conversion price. The Company also issued to Telesis CDE Corporation warrants to purchase 1.2 million shares of the Companys common stock over a period of nine-years at a fixed price of
$1.30. These warrants are reflected as an equity financing cost in stockholders equity at a fair value of $517,000 computed using the Black-Scholes option pricing model. Accentia also issued warrants to Telesis CDE Corporation to purchase
0.2 million shares of Accentias common stock over a period of seven years at a fixed price of $9.00.



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New Market Tax Credit Transactions (continued):



Other salient terms and conditions of Transaction I are as follows:

Under an Asset Purchase and Sale Agreement dated as of April 18, 2006, Biovest transferred all or substantially all of the assets of its vaccine manufacturing
business situated at 377 Plantation Street, Worcester, Massachusetts (the Plant and the assets hereinafter the Equipment) and its rights under that certain lease agreement for the Plant and that certain letter of intent with
the landlord to potentially lease additional space adjacent to the Plant (collectively the Leasehold) to Biovax. As full purchase price for the Equipment, Biovax paid Biovest $1.5 million and assumed certain liabilities, including a
portion of a demand note payable to Accentia. In addition, Biovax advanced rental payments for the Leasehold in the amount of $4.5 million. Under the Asset Purchase Agreement, the Company is required to treat the advance as unrestricted and
non-segregated funds provided that the Company uses the funds to make all required lease payments. Finally, Biovax also hired all of the Companys employees that are related to the vaccine manufacturing business and assumed responsibility for
all accrued vacation time and the maintenance of existing health and other benefits.



| |  |  | The tax credits arising from this transaction were fully assigned to US Bancorp. The Company, its subsidiaries and certain related parties (also see 3, below) have
entered into an indemnification agreement directly with US Bancorp that provides for indemnification in the event of tax credit recapture from events caused by the Company. Biovax, Inc., the Companys wholly owned subsidiary, is contractually
required to maintain the following covenants to avoid tax credit recapture: (i) Biovax shall maintain its status as a qualified active low-income business; (ii) At least fifty percent (50%) of the use of the tangible property of the
Biovax (whether owned or leased) will be within the low-income community as defined by Section 45D(e) of the U.S. Tax Code; (iii) At least fifty percent (50%) of the services performed for Biovax by its employees will be within
low-income community as defined by Section 45D(e) of the U.S. Tax Code; (iv) Less than five percent (5%) of the average of the unadjusted bases of the property of Biovax will be attributable to collectibles (as defined in
Section 408(m)(2) of the Code, and which includes any work of art; any rug or antique; any metal or gem; any stamp or coin; and any alcoholic beverage) other than collectibles that are held primarily for sale to customers in the ordinary course
of business; (v) Less than five percent (5%) of the average of the unadjusted bases of the property of Biovax will be attributable to nonqualified financial property (as defined in Section 1397C(e) of the Code and in
Section 1.45D-1(d)(4)(i)(E) of the Regulations, and which includes debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities and other similar property); (vi) No
part of the business activities of Biovax will consist of the operation of any private or commercial golf course, country club, massage parlor, hot tub facility, or suntan facility, race track or other facility used for gambling, or store the
principal business of which is the sale of alcoholic beverages for consumption off premises; (vii) No part of Biovaxs business activities will include the rental to others of residential rental property (the term residential rental
property is defined in Section 168(e)(2)(A) of the Code as meaning any building or structure if eighty percent (80%) or more of the gross rental income from such building or structure for the taxable year is rental income from
dwelling units); (viii) The predominant trade or business of Biovax will not include the development or holding of intangibles for sale or license, as provided under Section 1.45D-1(d)(5)(iii) of the Regulations; (ix) Farming (within
the meaning of Section 2032A(e)(5)(A) or (B) of the Code) will not be an activity of Biovax; (x) Biovax will generate revenues by the date of April 25, 2009; (xi)Biovax shall not discontinue conducting business, shall not
materially change the nature of its business, and shall not materially change the manner in which its business activities are conducted, other than changes in the nature of its business or the manner in which it conducts its business that do not
cause the
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New Market Tax Credit Transactions (continued):



| |  |  | making of the Loan by the Lender to cease to constitute a qualified low-income community investment as such term is used in Section 45D of the Code
(as determined by the Lender in its good faith judgment and based upon the advice of counsel); (xii) Biovax will not be a bank, credit union or other financial institution; (xiii) Biovax will not maintain a qualified low-income building
under Section 42 of the Code; (xiv) Biovax will not become a single-member entity treated as disregarded as separate from its owner for federal income tax purposes, nor be liquidated or merged into another entity without the written
consent of Telesis CDE II, LLC; and (xv) Biovax and Biovest will operate consistently with the Asset Purchase and Sale Agreement between Biovax and Biovest, and will not amend such agreement without prior written consent of Telesis CDE II, LLC.
An example of an event that would not cause a recapture is changes in the Internal Revenue Code that results in such recapture. The total indemnification amount could be $4.7 million (representing 39% of the $12.0 million qualified investment).
However, in accordance with Financial Interpretation 45 Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of the Indebtedness of Others, the conditions and events that could result in recapture are
within the Companys control. Therefore, this potential liability is not reflected in the financial statements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In connection with the NMTC financing, the Company and US Bancorp entered into a put option wherein US Bancorp will have the right to put its investment in the Fund
to the Company near the maturity of the instruments at a price of $180,000. The Company has concluded that this contract constitutes a derivative liability that requires accounting recognition at fair value. The Company utilized a probability-based,
discounted cash flow approach to value the put. In applying this technique, the Company, on the inception date, concluded that it was probable that US Bancorp would exercise their contractual right to put the investment. Accordingly, the valuation
technique provided for the recognition of the full put amount ($180,000) at the present value of its cash flows, using market interest rates that would likely be considered by market participants trading similar instruments. The present value
associated with the put option and included in derivative liabilities in the June 30, 2007 balance sheet is approximately $95,000.
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| |  |  | The Company, its subsidiaries and certain related parties have entered into a guarantee arrangement with Telesis CDE II, Inc. for the debt service of Biovax. In
addition, Accentia has partially guaranteed debt service with limitations established at no greater than $60,000 each year the instrument is outstanding. The Company issued warrants to purchase 1.0 million shares of common stock to the related
parties as compensation for their guarantees. The guarantees were treated in a manner similar to contributed service and their fair value of $460,000 was charged to expense upon issuance. The Company also indemnified the guarantors from any claims
of any kind to the extent that the guarantors are called upon to pledge funds, assets or collateral in connection with the guarantee being executed.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Various legal and accounting fees of $757,000 involved in structuring this transaction were recorded as deferred financing costs and prepaid expenses and will be
amortized over a period of seven and one half years, representing the duration of both convertible notes issued by the Fund and Biovax, Inc.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On December 8, 2006, the Company through its wholly owned subsidiary, AutovaxID, Inc. (AutovaxID) closed a second New Market Tax Credit financing transaction (Transaction II). The following parties were involved
in Transaction II: AutovaxID, Accentia, Biolender II, LLC (Biolender II), St. Louis New Market Tax Credit Fund II, LLC, St. Louis Development Corp., AutovaxID Investment LLC (Leverage Fund), U.S. Bancorp, and Laurus.

On December 8, 2006, Accentia loaned to Biovest $3.1 million pursuant to a Secured Promissory Note (the Accentia Note). Under the terms
of the Accentia Note, interest shall accrue at a rate equal to prime rate, payable upon demand of Accentia. Biovest shall pay principal and interest as follows: (a) $1.1 million was paid to Accentia upon the closing of the Transaction and
(b) the remaining $2.0 million of principal and all accrued and unpaid interest shall be paid by Biovest upon demand by Accentia.

In contemplation of
Transaction II, Biovest formed Biolender II, LLC as a Delaware limited liability company. On December 8, 2006, $2.5 million was released from the Restricted Account created under the Laurus Note, which together with the amount loaned to Biovest
under the Accentia Note funded the purchase of a 100% equity interest in Biolender II for the benefit of Biovest. The entire equity interest of $5.6 million in Biolender II owned by Biovest has been pledged to Laurus as collateral to secure the
Laurus Note.



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New Market Tax Credit Transactions(continued):



In contemplation of Transaction II, AutovaxID Investment, LLC was established. U.S. Bancorp invested $2.4 million for
a 100% equity interest in the Leverage Fund. Additionally, Biolender II and the Leverage Fund entered into a Loan and Security Agreement pursuant to which Biolender II made a loan to the Leverage Fund in the principal amount of $5.6 million (the
Leverage Loan), evidenced by a promissory note dated December 8, 2006 payable from the Leverage Fund to Biolender II (the Leverage Note). The Leverage Note becomes due on June 9, 2014, and bears an interest rate of
8%, non-compounding. Payment of interest is due annually on the first calendar day of each year through maturity. The outstanding principal amount on the Leverage Loan and any unpaid interest is due on maturity in cash.

The proceeds received by the Leverage Fund from U.S. Bancorp and Biolender II were used to make a contemporaneous 99.99% equity investment in St. Louis New Market Tax
Credit Fund II, LLC. The $8.0 million investment by the Leverage Fund to St. Louis New Market Tax Credit Fund II, LLC constituted a qualified equity investment (QEI) under the New Markets Tax Credit Program authorized by Section 45D
of the Internal Revenue Code of 1986, as amended, resulting in $3.12 million in tax credits which were allocated to U.S. Bancorp. All of the Leverage Funds interest in St. Louis New Market Tax Credit Fund II, LLC has been pledged to Biolender
II as collateral for the Leverage Loan.

St. Louis New Market Tax Credit Fund II, LLC is a Community Development Entity (CDE) that is certified
through the U.S. Treasury Department to make Qualified Low-Income Community Investments (QLICI), and is managed and partially owned (0.01%) by St. Louis Development Corporation, a not-for-profit corporation organized in Missouri. St.
Louis Development Corporation paid $1,000 in consideration for its 0.01% interest in the CDE. St. Louis New Market Tax Credit Fund II, LLC, upon receipt of its equity funding, contemporaneously issued a QLICI to AutovaxID, evidenced by a $7.7
million Subordinated Promissory Note dated as of December 8, 2006 and described in more detail below.

Other salient terms and conditions of
Transaction II are as follows:



| |  |  | Under a License and Asset Purchase Agreement dated as of December 8, 2006, Biovest granted a nonexclusive license to the intellectual property enabling
AutovaxID to manufacture and sell automated cell culture instruments in the United States, Canada and Mexico (the License), which license became exclusive upon the occupancy by AutovaxID of a space located at 1031 Macklind Avenue, St.
Louis, Missouri (the New Plant) in June 2007. As full purchase price for the License and related business opportunity, AutovaxID paid Biovest $5.6 million. Biovest also agreed to sell AutovaxID certain equipment upon the occupancy by
AutovaxID of the New Plant for the fair market value of $0.5 million.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The CDE Loan has a principal amount of $7.7 million and matures on December 8, 2036. Pursuant to a call right, for a period of six months starting on
December 8, 2013, the CDE will have the right to call for the repayment of the CDE Loan in the amount of $5.7 million, in full satisfaction of the principal on the CDE Loan. Interest on the outstanding principal amount of the CDE Loan shall
accrue at the rate of 5.82% per annum, non-compounding and shall be payable in arrears on an annual basis commencing on January 2, 2007 and continuing until maturity. The CDE Loan is guaranteed by Biovest.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The CDE Loan is secured by second lien on all assets of AutovaxID for the benefit of the CDE pursuant to a Second-Lien Security Agreement between AutovaxID and the
CDE dated as of December 8, 2006. Laurus has a senior lien on the assets of AutovaxID through the security agreement from Biovest to Laurus, which AutovaxID joined by way of a Joinder Agreement.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The CDE Loan shall be due and payable by AutovaxID in full on the maturity date of the CDE Loan. However, if the CDE exercises its call right pursuant to the CDE
Loan, then the CDE Loan becomes due and payable on the date of such call for the amount of $5.7 million, in full satisfaction of the principal on the CDE Loan, together with all accrued but unpaid interest.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | AutovaxID does not have the right to prepay the CDE Loan prior to June 8, 2014. AutovaxID does have the right to prepay the CDE Loan after this date, provided
that (i) it prepays the entire CDE Loan amount, (ii) the CDE consents to such prepayment and USBCIC and the managing member of the CDE agree on the reinvestment of such proceeds in an alternative investment that would qualify as a QLICI
and (iii) AutovaxID or the Individual Guarantors (as defined below) under the Tax Credit and Reimbursement and Indemnity Agreement pay to USBCIC the recapture amount so specified is such agreement.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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New Market Tax Credit Transactions(continued):



| |  | All indebtedness owed by AutovaxID and its subsidiaries to the CDE, including its right to receive payments of principal and interest under the CDE Loan, is
expressly subordinate to the extent set forth under the Telesis Subordination Agreement dated as of December 8, 2006 entered into by Laurus, the CDE, USBCIC, AutovaxID and Biovest.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The tax credits arising from this transaction were fully assigned to US Bancorp. The Company, its subsidiaries and certain related parties (also see 3, below) have
entered into an indemnification agreement directly with US Bancorp that provides for indemnification in the event of tax credit recapture from events caused by the Company. AutovaxID, Inc., the Companys wholly owned subsidiary, is
contractually required to maintain the following covenants to avoid tax credit recapture: (i) AutovaxID shall maintain its status as a qualified active low-income business; (ii) At least fifty percent (50%) of the use of the tangible
property of the AutovaxID (whether owned or leased) will be within the low-income community as defined by Section 45D(e) of the U.S. Tax Code; (iii) At least fifty percent (50%) of the services performed for AutovaxID by its employees
will be within low-income community as defined by Section 45D(e) of the U.S. Tax Code; (iv) Less than five percent (5%) of the average of the unadjusted bases of the property of AutovaxID will be attributable to collectibles (as
defined in Section 408(m)(2) of the Code, and which includes any work of art; any rug or antique; any metal or gem; any stamp or coin; and any alcoholic beverage) other than collectibles that are held primarily for sale to customers in the
ordinary course of business; (v) Less than five percent (5%) of the average of the unadjusted bases of the property of AutovaxID will be attributable to nonqualified financial property (as defined in Section 1397C(e) of the Code and
in Section 1.45D-1(d)(4)(i)(E) of the Regulations, and which includes debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities and other similar property); (vi) No
part of the business activities of AutovaxID will consist of the operation of any private or commercial golf course, country club, massage parlor, hot tub facility, or suntan facility, race track or other facility used for gambling, or store the
principal business of which is the sale of alcoholic beverages for consumption off premises; (vii) No part of AutovaxIDs business activities will include the rental to others of residential rental property (the term residential
rental property is defined in Section 168(e)(2)(A) of the Code as meaning any building or structure if eighty percent (80%) or more of the gross rental income from such building or structure for the taxable year is rental income from
dwelling units); (viii) The predominant trade or business of AutovaxID will not include the development or holding of intangibles for sale or license, as provided under Section 1.45D-1(d)(5)(iii) of the Regulations; (ix) Farming
(within the meaning of Section 2032A(e)(5)(A) or (B) of the Code) will not be an activity of AutovaxID; (x) AutovaxID will generate revenues by the date of December 8, 2009; (xi)AutovaxID shall not discontinue conducting
business, shall not materially change the nature of its business, and shall not materially change the manner in which its business activities are conducted, other than changes in the nature of its business or the manner in which it conducts its
business that do not cause the making of the Loan by the Lender to cease to constitute a qualified low-income community investment as such term is used in Section 45D of the Code (as determined by the Lender in its good faith
judgment and based upon the advice of counsel); (xii) AutovaxID will not be a bank, credit union or other financial institution; (xiii) AutovaxID will not maintain a qualified low-income building under Section 42 of the Code;
(xiv) AutovaxID will not become a single-member entity treated as disregarded as separate from its owner for federal income tax purposes, nor be liquidated or merged into another entity without the written consent of St. Louis New Market Tax
Credit Fund II, LLC; and (xv) AutovaxID and Biovest will operate consistently with the License and Asset Purchase Agreement between AutovaxID and Biovest, and will not amend such agreement without prior written consent of St. Louis New Market
Tax Credit Fund II, LLC. An example of an event that would not cause a recapture is changes in the Internal Revenue Code that results in such recapture. The total indemnification amount could be $3.12 million (representing 39% of the $8.0 million
qualified investment). However, in accordance with Financial Interpretation 45 Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of the Indebtedness of Others, the conditions and events that could
result in recapture are within the Companys control. Therefore, this potential liability is not reflected in the financial statements.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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New Market Tax Credit Transactions(continued):



| |  |  | In connection with the NMTC financing, the Company and U.S. Bancorp entered into a put option wherein US Bancorp will have the right to put its investment in the
Fund to the Companys subsidiary, Biolender II starting on December 9, 2013 and ending three months thereafter at a price of $120,000. Furthermore, under a Purchase Option Agreement, for a three month period after the expiration of the put
option and to the extent that the put option was not exercised, Biolender II will have the option to purchase U.S. Bancorps equity interests in the Leverage Fund based on the fair market value of the equity interests at that time. The Company
has concluded that this contract constitutes a derivative liability that requires accounting recognition at fair value. The Company utilized a probability-based, discounted cash flow approach to value the put. In applying this technique, the
Company, on the inception date, concluded that it was probable that US Bancorp would exercise their contractual right to put the investment. Accordingly, the valuation technique provided for the recognition of the full put amount ($120,000) at the
present value of its cash flows, using market interest rates that would likely be considered by market participants trading similar instruments. The present value associated with the put option and included in derivative liabilities in the
June 30, 2007 balance sheet is approximately $59,000.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company, its subsidiaries and certain related parties have entered into a guarantee arrangement with St. Louis New Markets Tax Credit Fund II, LLC for the debt
service of AutovaxID. The Company issued warrants to purchase 2.6 million shares of common stock to the related parties as compensation for their guarantees. The guarantees were treated in a manner similar to contributed service and their fair
value of $1.4 million was charged to expense upon issuance. The Company also indemnified the guarantors from any claims of any kind to the extent that the guarantors are called upon to pledge funds, assets or collateral in connection with the
guarantee being executed.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Various legal and accounting fees of $764,000 involved in structuring this transaction were recorded as deferred financing costs and prepaid expenses and will be
amortized over a period of seven and one half years, representing the duration of the note issued by AutovaxID Investment, LLC and payable to Biolender II, LLC.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Accounting for the NMTC financing arrangement:

The Company evaluated the structure of the NMTC financing
arrangements and entities so involved under the context of FIN46. FIN46 provides a framework for determining whether certain entities should be consolidated (irrespective of equity ownership) based upon a variable interests model. This model
determines the control and consolidation based upon potential variability in gains and losses of the entity being evaluated for consolidation. Generally, a variable interest holder that absorbs a majority of the entitys expected losses, if
they occur, receives a majority of the entitys expected residual return, if they occur, or both is identified as the primary beneficiary for consolidation purposes.

The Company concluded that Biovax Investment, LLC, Telesis CDE Two, LLC, Autovax Investment, LLC and St. Louis New Market Tax Credit Fund II, LLC met the definition of variable interest entity. However, for the
Company to be required to apply the provisions of the Interpretation, it must have a variable interest in the entity. Variable interests in a variable interest entity are contractual, ownership or other monetary interests in an entity that change
with changes in the value of the net assets of the entity. The following tables illustrate the variable interests have been identified in each of the entities considered by the Company and the related holder:

New Market Tax Credit Transaction I:



|                                |  |                                                                                                            |  |                                               
|------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|Variable Interest Holder        |  | Variable Interests Biovax Investment, LLC                                                                  |  | Variable Interests Telesis CDE Two, LLC       
|Biovest and its Related Parties |  | Senior beneficial interest Guaranty Agreement
Indemnification Agreement Put (VIE Equity) Call (VIE Equity) |  | Senior beneficial interest Guarantee
Agreement
|                                |  |                                                                                                           
|Biovax Investment, LLC          |  |                                                                                                            |  | VIE Equity (99.9%)                            
|                                |  |                                                                                                           
|US Bancorp                      |  | VIE Equity (99.9%)                                                                                         |  | Tax Credit Rights                             
|                                |  |                                                                                                           
|Biovax Investment Corp.         |  | VIE Equity (0.01%)                                                                                         |  |                                               
|                                |  |                                                                                                           
|Telesis CDE, Corp               |  |                                                                                                            |  | VIE Equity (0.01%)                            



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##### Table of Contents

New Market Tax Credit Transactions(continued):



New Market Tax Credit Transaction II:



|                                  |  |                                                                                                            |  |                                               
|--------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|Variable Interest Holder          |  | Variable Interests AutovaxID Investment, LLC                                                               |  | Variable Interests St. Louis NMTC Fund II, LLC
|Biovest and its Related Parties   |  | Senior beneficial interest Guaranty Agreement
Indemnification Agreement Put (VIE Equity) Call (VIE Equity) |  | Senior beneficial interest Guarantee
Agreement
|                                  |  |                                                                                                           
|AutovaxID Investment, LLC         |  |                                                                                                            |  | VIE Equity (99.9%)                            
|                                  |  |                                                                                                           
|US Bancorp                        |  | VIE Equity (100%)                                                                                          |  | Tax Credit Rights                             
|                                  |  |                                                                                                           
|St. Louis Development Corporation |  |                                                                                                            |  | VIE Equity (0.01%)                            

The above table illustrates the weight of the variable interests that are held by the Company. In addition, in
performing quantitative valuation, the Company afforded significant weight to the guarantee agreements, indemnifications and put features, the preponderance of which limit the equity investors risk of loss on the venture. In evaluating both
qualitative and quantitative considerations, the Company has concluded that its variable interests in the entity absorb most of the entities losses and should, therefore, consolidate the entities under the scope of FIN46.

Variable Interest Entities:

Assets of $20.2 million and liabilities
of $14.8 million of the variable interest entities identified above, are limited to the instruments referred to in the description of the NMTC financing arrangement above. In accordance with consolidation principles, these assets and liabilities are
eliminated in consolidation leaving the non-controlling interests of US Bancorp, Telesis CDE Corp, Biovax Investment Corp, and St. Louis Development Corporation, reflected on the Companys June 30, 2007 condensed consolidated balance sheet
as non controlling interests in variable interest entities.

The Companys $590,000 non-controlling interest in losses from variable interest entities
on it consolidated statement of operations for the nine months ended June 30, 2007 consists of the following:



|                            |  |                   |          |  
|--------------------------- |  | ----------------- | -------- | -
|Variable Interest Entity    |  | Net (Income)/Loss |         
|Biovax Investment LLC       |  | $                 | 585,000  |  
|Telesis CDE Two, LLC        |  |                   | (9,000   | )
|AutovaxID Investment, LLC   |  |                   | 250,000  |  
|St. Louis NMTC Fund II, LLC |  |                   | (236,000 | )
|                            |  |                   |          |  
|                            |  | $                 | 590,000  |  
|                            |  |                   |          |  

Notes Payable:

On January 16, 2007, the Company closed an amended and restated loan transaction (Note 1) with Pulaski Bank and Trust Company of St. Louis, MO (Pulaski), which amended the Loan Agreement dated September 5,
2006 pursuant to which Pulaski agreed to loan $1 million to the Company pursuant to an unsecured Promissory Note. The Company issued warrants to purchase 25,000 shares of the Companys common stock as a loan origination fee. The Company also
closed on a second loan transaction with Pulaski Bank on March 22, 2007 (Note 2), pursuant to which Pulaski agreed to loan an additional $0.75 million to the Company pursuant to an unsecured Promissory Note. The balance of both
notes in the June 30, 2007 financial statements includes principal of $1.75 million plus accrued interest of $13,000. The company issued warrants to purchase 1,770,453 shares of the Companys common stock to certain officers and directors
in conjunction with their guarantee of these notes payable.



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Notes Payable (continued):



Note 1 had an original maturity date of July 5, 2007, and was subsequently extended to September 5, 2007.
The Company paid $25,000 in cash as well as warrants to purchase 85,710 shares of the Companys common stock with a five year term at $1.10 per share to Pulaski Bank in consideration for this extension. The note can be prepaid by the Company at
any time without penalty. The note bears interest at the prime rate minus .05% (7.75% per annum at June 30, 2007), requiring monthly payments of interest only. The note is an unsecured obligation of the Company and is subordinated to the
Companys outstanding loan to Laurus Master Fund, Ltd. The note is guaranteed by entities and individuals affiliated with the Company or Accentia, the majority stockholder of the Company. The Company has entered into Indemnification Agreements
with each of the guarantors. The Company issued warrants to purchase 1,388,636 shares of the Companys common stock to certain officers and directors in conjunction with their guarantee of this note payable.

Note 2 had an original maturity date of May 21, 2007, and was subsequently extended to September 21, 2007. The Company paid $18,750 in cash as well as warrants
to purchase 64,290 shares of the Companys common stock with a five year term at $1.10 per share to Pulaski Bank in consideration for this extension. The note bears interest at the prime rate minus .05% (7.75% per annum as of June 30,
2007), with interest only payments due monthly. The note is an unsecured obligation of the Company and is subordinated to the Companys outstanding loan to Laurus Master Fund, Ltd. The note is guaranteed by entities and individuals affiliated
with the Company or Accentia, the majority stockholder of the Company. The Company has entered into Indemnification Agreements with each of the guarantors. The Company issued to the guarantors warrants to purchase an aggregate total of 381,817
shares of the Companys Common Stock, par value $0.01 per share, at an exercise price of $1.10 per share. The Company issued to Pulaski Bank warrants to purchase a total of 25,000 shares of the Companys common stock as a loan origination
fee

The Company agreed to indemnify and hold harmless each guarantor should their guarantees be called by the Lender by agreeing to compensate each
affected guarantor by an issuance of restricted common stock equal to 700% of the amount of their guarantee.

On June 26, 2007 the Company closed a
loan transaction with Southwest Bank Creve Couer Financial Center of St. Louis, MO (Southwest) pursuant to which Southwest agreed to loan $0.2 million to the Company pursuant to an unsecured Promissory Note. The note matures on
December 26, 2007, and can be prepaid by the Company at any time without penalty. The note bears interest at the prime rate plus 1.0% (9.25% per annum at June 30, 2007), requiring monthly payments of interest only. The note is an unsecured
obligation of the Company and is subordinated to the Companys outstanding loan to Laurus Master Fund, Ltd. The note is guaranteed by an officer of Accentia, the majority stockholder of the Company. The Company has entered into an
Indemnification Agreement with the guarantor whereby the Company has agreed to indemnify and hold harmless the guarantor should the guarantee be called by the Lender.

In conjunction with the issuance of this note payable the Company issued to the guarantor warrants to purchase 109,090 shares of the Companys Common Stock, par value $0.01 per share, at an exercise price of
$1.10 per share (the Warrants). The Warrants will expire on January 26, 2012. Under the terms of the Warrants, the guarantors shall have piggy-back registration rights for the shares underlying the Warrants.

The balance of this note in the June 30, 2007 financial statements includes principal of $0.2 million plus accrued interest of $2,000.



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Operating Capital and Capital Expenditure Requirements:

Our ability to continue our present operations and meet our obligations for vaccine development and commercialize our automated cell culture instrument is dependent upon
our ability to continue obtaining significant external funding. See Note 3 in the notes to the condensed consolidated financial statements. As previously discussed Accentia has advanced all payments required under its investment agreement
obligation of $20 million. Additionally, Accentia has loaned the Company a net $10.0 million through June 30, 2007, including the inter-company demand loans discussed above. As of August 1, 2007, certain principal and interest payments due
on the Companys $7.8 million note payable due to the Companys senior secured creditor, Laurus Master Fund, Ltd. had not been made, although no default has been declared on these obligations as of this time. Additional sources of funding
have not been established; however, additional financing is currently being sought by the Company from a number of sources other than Accentia, including the sale of equity or debt securities, strategic collaborations, recognized research funding
programs, as well as domestic and/or foreign licensing of our vaccine. Management is currently in the process of exploring various financing alternatives, and has hired an investment banking firm to assist in these efforts. There can be no assurance
that we will be successful in securing such financing at acceptable terms, if at all. If adequate financing is not established 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 business units that are non-essential to the ongoing development or future commercialization of BiovaxID and AutovaxID. If adequate financing is not established and if other strategic
financing options are not available, 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 and the company may not be able
to continue as a going concern.

Subsequent Events:

Effective as of July 5, 2007, we entered into a renewal and extension of the maturity date of the Promissory Note dated January 5, 2007 to Pulaski Bank. This Promissory Note, which had an original maturity date of July 5, 2007,
now matures on September 5, 2007. We agreed to pay $25,000 in cash as well as to issue warrants to purchase 85,710 shares of the our common stock with a five-year term and an exercise price of $1.10 per share to Pulaski Bank in consideration
for this extension. The note can be prepaid by us at any time without penalty. The note bears interest at the prime rate minus .05% (7.75% per annum at June 30, 2007), requiring monthly payments of interest only. All other terms of the
Promissory Note dated January 5, 2007 remain the same as previously disclosed.

Effective as of July 21, 2007, we entered into a renewal and
extension of the maturity date of the Promissory Note dated April 22, 2007 to Pulaski Bank. This Promissory Note, which had an original maturity date of May 21, 2007, now matures on September 21, 2007. We agreed to pay $18,750 in cash
as well as to issue warrants to purchase 64,290 shares of our common stock with a five-year term and an exercise price of $1.10 per share to Pulaski Bank in consideration for this extension. The note bears interest at the prime rate minus .05%
(7.75% per annum as of June 30, 2007), with interest only payments due monthly. All other terms of the Promissory Note dated April 22, 2007 remain the same as previously disclosed.

Effective as of August 12, 2007, we terminated the Employment Agreement of Carl M. Cohen, Ph.D., the Companys Chief Operating Officer. In accordance with the
terms of his employment agreement, Dr. Cohen will receive termination compensation in the amount of his base salary for a period of six months along with continuation of insurance benefits.

Fluctuations in Operating Results:

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



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Potential Dilutive Effect of Outstanding Stock Options, Warrants and Convertible Debt:

We have outstanding options, warrants and convertible debt (Stock Rights) pursuant to which we may be required to issue additional shares of our Common Stock.
These dilutive securities are described in footnotes to our Consolidated Financial Statements for the fiscal year ended September 30, 2006, which were filed as part of our 10-KSB. Additionally, as part of our Investment Agreement with Accentia,
we granted Accentia the right to maintain its then 81% ownership of our Common Stock in the event of the exercise of certain Stock Rights (the Accentia First Right of Refusal Agreement). The Accentia First Right of Refusal entitles
Accentia to purchase that number of shares of our Common Stock necessary to maintain its then 81% ownership after the exercise of certain Stock Rights at an aggregate purchase price equal to the total amount paid in the exercise of such Stock
Rights. Pursuant to the New Market Tax Credit Financing, Accentia sold back 10 million shares of our common stock, and further declined to exercise of its First Right of Refusal regarding all shares of stock issued from October 1, 2005
through September 30, 2006. On October 31, 2006, Accentia agreed to terminate its anti-dilution (First Right of Refusal) agreement with Biovest in exchange for 5.0 million shares of common stock.



|                                               |  |            
|---------------------------------------------- |  | -----------
|Shares Issued and Outstanding at June 30, 2007 |  | 94,636,811 
|Options                                        |  | 8,987,324  
|Warrants                                       |  | 21,540,545 
|Convertible Notes                              |  | 46,817     
|                                               |  |            
|Total                                          |  | 125,211,497
|                                               |  |            



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

We
expect to continue to incur substantial operating losses in the future. We will not receive any product revenue until BiovaxID has been approved by the FDA or similar regulatory agencies in other countries and successfully commercialized. We
currently anticipate that our cash, cash equivalents and marketable securities, together with cash flow generated from our collaborations, fund raising and potential commercial partnering opportunities currently in process will be sufficient to fund
our operations at least through the next twelve months. However, we will need to raise substantial additional funds to continue our operations and bring future products to market. We cannot be certain that our efforts will be successful or that we
will be able to raise sufficient funds to complete the development and commercialization of BiovaxID, should it be approved. Additionally, we plan to continue to evaluate licensing opportunities that would fit with our strategy. Any such
transaction would likely increase our funding needs in the future.

Our future funding requirements will depend on many factors, including but not limited
to:



| |  |  | the size and complexity of our research and development programs;
| | - |  | -----------------------------------------------------------------



| |  |  | the scope and results of our clinical trials;
| | - |  | ---------------------------------------------



| |  |  | continued scientific progress in our research and development programs;
| | - |  | -----------------------------------------------------------------------



| |  |  | the time and expense involved in seeking regulatory approvals;
| | - |  | --------------------------------------------------------------



| |  |  | competing technological and market developments;
| | - |  | ------------------------------------------------



| |  |  | acquisition, licensing and protection of intellectual property rights; and
| | - |  | --------------------------------------------------------------------------



| |  |  | the cost of establishing manufacturing capabilities and conducting commercialization activities.
| | - |  | ------------------------------------------------------------------------------------------------

Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily
through public or private equity offerings, debt financings or strategic collaborations and partnering. If we are successful in raising additional funds through the issuance of equity securities, investors likely will experience dilution, or the
equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. If we raise funds through the issuance of debt securities, those securities would have rights, preferences and privileges senior to
those of our common stock. We do not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more
of our clinical trials or research and development programs.



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

An evaluation was performed under the
supervision and with the participation of our management, including the Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of
June 30, 2007, and for the period covered by this report. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures are effective as of June 30, 2007, and for the period
covered by this report, to ensure that information required to be disclosed in the reports that Biovest files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in
the Securities and Exchange Commissions rules and forms. There have been no significant changes in our internal control over financial reporting or in other factors in the first nine months of fiscal 2007 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
|------- | -----------------

We are involved with the litigation titled
Biovest International, Inc. v. Excorp Medical, Inc. This matter was for collection of a debt owed to Biovest arising out of a prior litigation. The defendant has breached the settlement agreement and a default judgment in the amount of $567,647 was
entered against Excorp Medical. On March 21, 2007, Biovest and Excorp entered into a Forebearance Agreement whereby Biovest agreed to forebear from exercising its rights to collect the Judgment until June 30, 2007. We are unable to
determine the collectability of the judgment at this time.

We have been served with a summons and complaint filed in Delaware Superior Court on behalf of
SPRI International LLC for breach of contract for non-payment of certain fees for clinical trial studies and pass-through expenses in the amount of $183,000. Biovest has indicated that it intends to seek to dismiss this litigation and submit any
claims involved in this matter to arbitration pursuant to a contractual arbitration clause. We plan to defend these claims vigorously.

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

Further, from time to time the Company is subject to various legal proceedings in the normal course of business, some of which may be covered by insurance. Management
believes that these proceedings will not have a material adverse effect on our business.



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

See Operating Capital and Capital Expenditure
Requirements in Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations, the risk factors set forth in our annual report on Form 10-KSB for the year ending September 30, 2006 and
Note 3 Additional expected financing activity to the Notes to Condensed Consolidated Financial Statements which are incorporated by reference herein.



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

Unregistered Sales of Equity Securities

None.



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

None.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.



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

Continued development activities related to our vaccine, including the Phase 3 clinical trials, are expected to result in substantial, and potentially increasing, expenditures over the next several years before any revenues from this
product development materialize. While we pursue FDA approval of the vaccine, we plan to make significant investment in the development of equipment, including the development of our automated cell production instrument, and potentially space and
related capability necessary to support commercial vaccine production requirements anticipated upon approval. We have filed an amendment to the trial Protocol to expand the trial to include patients who receive initial treatment including
Rituxan®, and we have accelerated the development of our commercial manufacturing protocols in anticipation of submission of an application for Accelerated Approval. Accordingly, we
anticipate that our expenditures related to vaccine and equipment development and commercialization will increase significantly over that experienced in the past. Our inability to obtain required funds or any substantial delay in obtaining required
funds would have an adverse effect on our ability to continue to develop our vaccine and prepare for its planned commercialization.



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

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



|               |  |                                                                                                                                              
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                  
|10.1           |  | Amended March 22, 2007 Promissory Note with Pulaski Bank and Trust Company of St. Louis, MO (Pulaski) and the Company dated April 22, 2007.
|               | 
|10.2           |  | Second Amended March 22, 2007 Promissory Note with Pulaski and the Company dated May 21, 2007.                                               
|               | 
|10.3           |  | Third Amended March 22, 2007 Promissory Note with Pulaski and the Company dated July 21, 2007.                                               
|               | 
|10.4           |  | Amended January 16, 2007 Promissory Note with Pulaski and the Company dated July 5, 2007.                                                    
|               | 
|31.1           |  | Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 302 of Sarbanes  Oxley Act.                          
|               | 
|31.2           |  | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes  Oxley Act.                                                    
|               | 
|32.1           |  | Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 906 of Sarbanes  Oxley Act.                          
|               | 
|32.2           |  | Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes  Oxley Act                                                     



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SIGNATURES

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



|                      |  |  |  |                                                               
|--------------------- |  |  |  | --------------------------------------------------------------
|                      |  |  |  | BIOVEST INTERNATIONAL, INC.                                   
|                      |  |  |  | (Registrant)                                                  
|                      |  | 
|Date: August 14, 2007 |  |  |  | /s/ Steven R. Arikian                                         
|                      |  |  |  | Steven R. Arikian, M.D.                                       
|                      |  |  |  | Chairman of the Board; Chief Executive Officer; Director      
|                      |  |  |  | (Principal Executive Officer)                                 
|                      |  | 
|Date: August 14, 2007 |  |  |  | /s/ James A. McNulty                                          
|                      |  |  |  | James A. McNulty, CPA                                         
|                      |  |  |  | Chief Financial Officer                                       
|                      |  |  |  | (Principal Financial Officer and Principal Accounting Officer)



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