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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the quarterly period ended March 31, 2009

OR



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

Commission file number 0-11480





BIOVEST
INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)







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

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

(Address of principal executive offices) (Zip Code)

(813) 864-2554

Registrants telephone number, including area code





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  x    No   ̈

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

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



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

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

As of June 30, 2010, there were 97,549,783 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 1A. RISK FACTORS of our Form 10-K for the fiscal year ended September 30, 2008 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.

(DEBTOR-IN-POSSESSION)



|                                                                                                                        |  |                                                                                       |  |   
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|                                                                                                                        |  | Page                                                                                 
|PART I. FINANCIAL INFORMATION                                                                                           |  |                                                                                      
|ITEM 1.                                                                                                                 |  | Financial Statements                                                                  |  |   
|Condensed Consolidated Balance Sheets as of March 31, 2009 (unaudited) and September 
30, 2008                          |  | 2                                                                                    
|Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 
31, 2009 and 2008 (unaudited) |  | 3                                                                                    
|Condensed Consolidated Statement of Stockholders Deficit for the Six Months Ended March 31,
 2009 (unaudited)          |  | 4                                                                                    
|Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 
31, 2009 and 2008 (unaudited)           |  | 5                                                                                    
|Notes to Condensed Consolidated Financial Statements                                                                    |  | 7                                                                                    
|ITEM 2.                                                                                                                 |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 38
|ITEM 3.                                                                                                                 |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 49
|ITEM 4T.                                                                                                                |  | Controls and Procedures                                                               |  | 50
|                                                                                                                        | 
|PART II. OTHER INFORMATION                                                                                              |  |                                                                                      
|ITEM 1.                                                                                                                 |  | Legal Proceedings                                                                     |  | 50
|ITEM 1A.                                                                                                                |  | Risk Factors                                                                          |  | 50
|ITEM 2.                                                                                                                 |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 51
|ITEM 3.                                                                                                                 |  | Defaults Upon Senior Securities                                                       |  | 51
|ITEM 4.                                                                                                                 |  | (Removed & Reserved)                                                                  |  | 51
|ITEM 5.                                                                                                                 |  | Other Information                                                                     |  | 51
|ITEM 6.                                                                                                                 |  | Exhibits                                                                              |  | 52



1



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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                     |  |                           |              |   |                   |   |              |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------------ | - | ----------------- | - | ------------ | -
|                                                                                                                                                                     |  | March 31, 2009(Unaudited) |              |   | September 30,2008 |  
|ASSETS                                                                                                                                                               |  |                           |              |   |                   |   |              |  
|Current assets:                                                                                                                                                      |  |                           |              |   |                   |   |              |  
|Cash                                                                                                                                                                 |  | $                         | 550,000      |   |                   | $ | 539,000      |  
|Accounts receivable, net of $10,000 allowance for doubtful accounts at March 31, 2009 and September 30,
2008                                                         |  |                           | 284,000      |   |                   |   | 281,000      |  
|Costs and estimated earnings in excess of billings on uncompleted contracts                                                                                          |  |                           | 2,000        |   |                   |   | 103,000      |  
|Inventories                                                                                                                                                          |  |                           | 574,000      |   |                   |   | 609,000      |  
|Prepaid expenses and other current assets                                                                                                                            |  |                           | 124,000      |   |                   |   | 243,000      |  
|                                                                                                                                                                     |  |                           |              |   |                   |   |              |  
|Total current assets                                                                                                                                                 |  |                           | 1,534,000    |   |                   |   | 1,775,000    |  
|Property and equipment, net                                                                                                                                          |  |                           | 119,000      |   |                   |   | 562,000      |  
|Patents and trademarks, net                                                                                                                                          |  |                           | 305,000      |   |                   |   | 320,000      |  
|Reorganization value in excess of amounts allocated to identifiable assets                                                                                           |  |                           | 2,131,000    |   |                   |   | 2,131,000    |  
|Other assets                                                                                                                                                         |  |                           | 289,000      |   |                   |   | 275,000      |  
|                                                                                                                                                                     |  |                           |              |   |                   |   |              |  
|Total assets                                                                                                                                                         |  | $                         | 4,378,000    |   |                   | $ | 5,063,000    |  
|                                                                                                                                                                     |  |                           |              |   |                   |   |              |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                |  |                           |              |   |                   |   |              |  
|Liabilities not subject to compromise:                                                                                                                               |  |                           |              |   |                   |   |              |  
|Current liabilities:                                                                                                                                                 |  |                           |              |   |                   |   |              |  
|Notes payable                                                                                                                                                        |  | $                         |             |   |                   | $ | 14,358,000   |  
|Current maturities of long-term debt                                                                                                                                 |  |                           |             |   |                   |   | 9,623,000    |  
|Accounts payable                                                                                                                                                     |  |                           | 159,000      |   |                   |   | 3,393,000    |  
|Customer deposits                                                                                                                                                    |  |                           | 104,000      |   |                   |   | 131,000      |  
|Accrued liabilities                                                                                                                                                  |  |                           | 226,000      |   |                   |   | 1,446,000    |  
|Billings in excess of costs and estimated earnings on uncompleted contracts                                                                                          |  |                           | 28,000       |   |                   |   |             |  
|Notes payable, related party                                                                                                                                         |  |                           | 1,280,000    |   |                   |   | 7,880,000    |  
|                                                                                                                                                                     |  |                           |              |   |                   |   |              |  
|Total current liabilities                                                                                                                                            |  |                           | 1,797,000    |   |                   |   | 36,831,000   |  
|Long-term debt, less current maturities                                                                                                                              |  |                           |             |   |                   |   | 62,000       |  
|Royalty liability, less current portion                                                                                                                              |  |                           |             |   |                   |   | 5,143,000    |  
|Derivative liabilities                                                                                                                                               |  |                           |             |   |                   |   | 905,000      |  
|                                                                                                                                                                     |  |                           |              |   |                   |   |              |  
|Total liabilities not subject to compromise                                                                                                                          |  |                           | 1,797,000    |   |                   |   | 42,941,000   |  
|Liabilities subject to compromise (Note 12)                                                                                                                          |  |                           | 46,089,000   |   |                   |   |             |  
|                                                                                                                                                                     |  |                           |              |   |                   |   |              |  
|Total liabilities                                                                                                                                                    |  |                           | 47,886,000   |   |                   |   | 42,941,000   |  
|                                                                                                                                                                     |  |                          
|Non-controlling interests in variable interest entities (Notes 15 and 16)                                                                                            |  |                           | 4,236,000    |   |                   |   | 4,432,000    |  
|                                                                                                                                                                     |  |                          
|Commitments and contingencies (Note 17)                                                                                                                              |  |                           |             |   |                   |   |             |  
|                                                                                                                                                                     |  |                          
|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; 97,549,783 and 96,485,477 issued and outstanding at March 31,
2009 and September 30, 2008, respectively |  |                           | 975,000      |   |                   |   | 965,000      |  
|Additional paid-in capital                                                                                                                                           |  |                           | 74,373,000   |   |                   |   | 73,993,000   |  
|Accumulated deficit                                                                                                                                                  |  |                           | (123,092,000 | ) |                   |   | (117,268,000 | )
|                                                                                                                                                                     |  |                           |              |   |                   |   |              |  
|Total stockholders deficit                                                                                                                                          |  |                           | (47,744,000  | ) |                   |   | (42,310,000  | )
|Total liabilities and stockholders deficit                                                                                                                          |  | $                         | 4,378,000    |   |                   | $ | 5,063,000    |  
|                                                                                                                                                                     |  |                           |              |   |                   |   |              |  

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



2



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                                                                      |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|--------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | -------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                      |  | Three Months EndedMarch 
31, |            |   | Six Months EndedMarch 
31, |  
|                                                                                                                      |  | 2009                         |            |   | 2008                       |   |            | 2009 |  |   | 2008       |  
|Revenue:                                                                                                              |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Products                                                                                                              |  | $                            | 714,000    |   |                            | $ | 821,000    |      |  | $ | 1,105,000  |   |  | $ | 1,578,000  |  
|Services                                                                                                              |  |                              | 272,000    |   |                            |   | 735,000    |      |  |   | 539,000    |   |  |   | 1,237,000  |  
|                                                                                                                      |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Total revenue                                                                                                         |  |                              | 986,000    |   |                            |   | 1,556,000  |      |  |   | 1,644,000  |   |  |   | 2,815,000  |  
|                                                                                                                      |  |                              |            |  
|Operating costs and expenses:                                                                                         |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Cost of revenue:                                                                                                      |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Products                                                                                                              |  |                              | 428,000    |   |                            |   | 500,000    |      |  |   | 752,000    |   |  |   | 932,000    |  
|Services                                                                                                              |  |                              | 246,000    |   |                            |   | 308,000    |      |  |   | 524,000    |   |  |   | 559,000    |  
|Research and development expense                                                                                      |  |                              | 267,000    |   |                            |   | 1,214,000  |      |  |   | 625,000    |   |  |   | 2,103,000  |  
|General and administrative expense                                                                                    |  |                              | 645,000    |   |                            |   | 1,530,000  |      |  |   | 1,581,000  |   |  |   | 2,478,000  |  
|                                                                                                                      |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Total operating costs and expenses                                                                                    |  |                              | 1,586,000  |   |                            |   | 3,552,000  |      |  |   | 3,482,000  |   |  |   | 6,072,000  |  
|                                                                                                                      |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Loss from operations                                                                                                  |  |                              | (600,000   | ) |                            |   | (1,996,000 | )    |  |   | (1,838,000 | ) |  |   | (3,257,000 | )
|                                                                                                                      |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Other (expense) income:                                                                                               |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Interest expense, net (Note 3)                                                                                        |  |                              | (1,643,000 | ) |                            |   | (2,182,000 | )    |  |   | (2,966,000 | ) |  |   | (2,965,000 | )
|Loss on extinguishment of debt                                                                                        |  |                              |           |   |                            |   | (384,000   | )    |  |   |           |   |  |   | (1,829,000 | )
|Gain/(Loss) on derivative liabilities                                                                                 |  |                              | (122,000   | ) |                            |   | (30,000    | )    |  |   | 641,000    |   |  |   | (552,000   | )
|Other income/(expense), net                                                                                           |  |                              | 56,000     |   |                            |   | 84,000     |      |  |   | (124,000   | ) |  |   | 262,000    |  
|                                                                                                                      |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Total other (expense) income                                                                                          |  |                              | (1,709,000 | ) |                            |   | (2,512,000 | )    |  |   | (2,449,000 | ) |  |   | (5,084,000 | )
|Loss before reorganization items, non-controlling interest in losses from variable interest entities and income
taxes |  |                              | (2,309,000 | ) |                            |   | (4,508,000 | )    |  |   | (4,287,000 | ) |  |   | (8,341,000 | )
|                                                                                                                      |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Reorganization items:                                                                                                 |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Professional fees                                                                                                     |  |                              | (90,000    | ) |                            |   |           |      |  |   | (217,000   | ) |  |   |           |  
|Provision for rejection of lease                                                                                      |  |                              |           |   |                            |   |           |      |  |   | (600,000   | ) |  |   |           |  
|Provision for indemnity agreements                                                                                    |  |                              | (407,000   | ) |                            |   |           |      |  |   | (916,000   | ) |  |   |           |  
|                                                                                                                      |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|                                                                                                                      |  |                              | (497,000   | ) |                            |   |           |      |  |   | (1,733,000 | ) |  |   |           |  
|                                                                                                                      |  |                              |            |  
|Loss before non-controlling interest in losses from variable interest entities and income taxes                       |  |                              | (2,806,000 | ) |                            |   | (4,508,000 | )    |  |   | (6,020,000 | ) |  |   | (8,341,000 | )
|                                                                                                                      |  |                              |            |  
|Non-controlling interest in losses from variable interest entities                                                    |  |                              | 97,000     |   |                            |   | 109,000    |      |  |   | 196,000    |   |  |   | 208,000    |  
|                                                                                                                      |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Net loss                                                                                                              |  | $                            | (2,709,000 | ) |                            | $ | (4,399,000 | )    |  | $ | (5,824,000 | ) |  | $ | (8,133,000 | )
|                                                                                                                      |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Loss per common share:                                                                                                |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted                                                                                                     |  | $                            | (0.03      | ) |                            | $ | (0.05      | )    |  | $ | (0.06      | ) |  | $ | (0.08      | )
|                                                                                                                      |  |                              |            |  
|Weighted average shares outstanding:                                                                                  |  |                              |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted                                                                                                     |  |                              | 97,549,783 |   |                            |   | 95,804,737 |      |  |   | 97,455,736 |   |  |   | 95,748,151 |  

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



3



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT

SIX MONTHS ENDED MARCH 31, 2009

(unaudited)



|                                                         |  |              |  |        |         |                           |   |                    |  |   |              |   |  |   |             |  
|-------------------------------------------------------- |  | ------------ |  | ------ | ------- | ------------------------- | - | ------------------ |  | - | ------------ | - |  | - | ----------- | -
|                                                         |  | Common Stock |  |        |         |                           |   |                    |  |  
|                                                         |  | Shares       |  | Amount |         | AdditionalPaid-in Capital |   | AccumulatedDeficit |  |   | Total        |  
|Balances at October 1, 2008                              |  | 96,485,477   |  | $      | 965,000 |                           | $ | 73,993,000         |  | $ | (117,268,000 | ) |  | $ | (42,310,000 | )
|Stock issued for payment of interest on outstanding debt |  | 964,306      |  |        | 9,000   |                           |   | 233,000            |  |   |             |   |  |   | 242,000     |  
|Stock issued for modification of debt                    |  | 100,000      |  |        | 1,000   |                           |   | 31,000             |  |   |             |   |  |   | 32,000      |  
|Warrants issued for modification of debt                 |  |             |  |        |        |                           |   | 62,000             |  |   |             |   |  |   | 62,000      |  
|Employee share-based compensation                        |  |             |  |        |        |                           |   | 54,000             |  |   |             |   |  |   | 54,000      |  
|Net loss                                                 |  |             |  |        |        |                           |   |                   |  |   | (5,824,000   | ) |  |   | (5,824,000  | )
|                                                         |  |              |  |        |         |                           |   |                    |  |   |              |   |  |   |             |  
|Balances at March 31, 2009                               |  | 97,549,783   |  | $      | 975,000 |                           | $ | 74,373,000         |  | $ | (123,092,000 | ) |  | $ | (47,744,000 | )
|                                                         |  |              |  |        |         |                           |   |                    |  |   |              |   |  |   |             |  

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



4



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BIOVEST INTERNATIONAL, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                                           |  |                           |            |   |      |   |            |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                           |  | Six Months EndedMarch 31, |           
|                                                                                                           |  | 2009                      |            |   | 2008 |  
|Cash flows from operating activities:                                                                      |  |                           |            |   |      |   |            |  
|Net loss                                                                                                   |  | $                         | (5,824,000 | ) |      | $ | (8,133,000 | )
|Adjustments to reconcile net loss to net cash flows from operating activities before reorganization items: |  |                           |            |   |      |   |            |  
|Depreciation                                                                                               |  |                           | 108,000    |   |      |   | 293,000    |  
|Amortization                                                                                               |  |                           | 9,000      |   |      |   | 14,000     |  
|Employee share-based compensation                                                                          |  |                           | 54,000     |   |      |   | 454,000    |  
|Loss on extinguishment of debt                                                                             |  |                           |           |   |      |   | 1,829,000  |  
|Amortization of discount on notes payable                                                                  |  |                           | 329,000    |   |      |   | 575,000    |  
|Amortization of deferred loan costs                                                                        |  |                           | 20,000     |   |      |   | 272,000    |  
|(Gain) Loss on disposal of property and equipment                                                          |  |                           | 335,000    |   |      |   | (12,000    | )
|Gain on settlement of accrued expenses                                                                     |  |                           |           |   |      |   | (214,000   | )
|Warrants issued for guarantees of financing                                                                |  |                           |           |   |      |   | 796,000    |  
|Non-controlling interest in loss of variable interest entities                                             |  |                           | (196,000   | ) |      |   | (208,000   | )
|Gain on shares issued for interest on outstanding debt                                                     |  |                           | (63,000    | ) |      |   |           |  
|(Gain)/Loss on derivative liability                                                                        |  |                           | (641,000   | ) |      |   | 552,000    |  
|Changes in cash resulting from changes in:                                                                 |  |                           |            |   |      |   |            |  
|Operating assets                                                                                           |  |                           | 189,000    |   |      |   | (185,000   | )
|Operating liabilities                                                                                      |  |                           | 2,798,000  |   |      |   | (1,822,000 | )
|                                                                                                           |  |                           |            |   |      |   |            |  
|Net cash flows from operating activities before reorganization items                                       |  |                           | (2,882,000 | ) |      |   | (5,789,000 | )
|                                                                                                           |  |                           |            |   |      |   |            |  
|Reorganization items:                                                                                      |  |                           |            |   |      |   |            |  
|Increase in accrued professional fees                                                                      |  |                           | 85,000     |   |      |   |           |  
|Change in provision for rejected lease                                                                     |  |                           | 600,000    |   |      |   |           |  
|Change in provision for indemnity agreements                                                               |  |                           | 916,000    |   |      |   |           |  
|                                                                                                           |  |                           |            |   |      |   |            |  
|Net change in cash flows from reorganization items                                                         |  |                           | 1,601,000  |   |      |   |           |  
|                                                                                                           |  |                           |            |   |      |   |            |  
|Net cash flows from operating activities                                                                   |  |                           | (1,281,000 | ) |      |   | (5,789,000 | )
|                                                                                                           |  |                           |            |   |      |   |            |  
|Cash flows from investing activities:                                                                      |  |                           |            |   |      |   |            |  
|Purchase of property and equipment                                                                         |  |                           |           |   |      |   | (9,000     | )
|Proceeds from sale of property and equipment                                                               |  |                           |           |   |      |   | 41,000     |  
|Deposit of restricted cash                                                                                 |  |                           |           |   |      |   | (3,343,000 | )
|Release of restricted cash                                                                                 |  |                           |           |   |      |   | 2,863,000  |  
|                                                                                                           |  |                           |            |   |      |   |            |  
|Net cash flows from investing activities                                                                   |  |                           |           |   |      |   | (448,000   | )
|                                                                                                           |  |                           |            |   |      |   |            |  
|Cash flows from financing activities:                                                                      |  |                           |            |   |      |   |            |  
|Repayment of notes payable and long-term debt                                                              |  |                           | (56,000    | ) |      |   | (3,004,000 | )
|Advances from related party                                                                                |  |                           | 1,413,000  |   |      |   | 1,067,000  |  
|Proceeds from long term debt                                                                               |  |                           |           |   |      |   | 9,045,000  |  
|Payment of deferred financing costs                                                                        |  |                           | (65,000    | ) |      |   | (426,000   | )
|                                                                                                           |  |                           |            |   |      |   |            |  
|Net cash flows from financing activities                                                                   |  |                           | 1,292,000  |   |      |   | 6,682,000  |  
|                                                                                                           |  |                           |            |   |      |   |            |  
|Net change in cash                                                                                         |  |                           | 11,000     |   |      |   | 445,000    |  
|Cash at beginning of period                                                                                |  |                           | 539,000    |   |      |   | 124,000    |  
|                                                                                                           |  |                           |            |   |      |   |            |  
|Cash at end of period                                                                                      |  | $                         | 550,000    |   |      | $ | 569,000    |  
|                                                                                                           |  |                           |            |   |      |   |            |  



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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(continued)

Supplemental disclosure of cash flow information:



|                                                          |  |   |         |  |   |          
|--------------------------------------------------------- |  | - | ------- |  | - | ---------
|Non-cash financing and investing transactions:            |  |   |         |  |   |          
|Issuance of warrants                                      |  | $ | 62,000  |  | $ | 206,000  
|Stock issued with financing transactions                  |  |   |        |  |   | 440,000  
|Stock issued for payment of accrued expenses and interest |  |   | 240,000 |  |   | 350,000  
|Stock issued for modification of debt                     |  |   | 25,000  |  |   |         
|Cash paid for interest during period                      |  | $ | 138,000 |  | $ | 1,456,000

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



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THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008

1. Description of the company:

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

Three clinical trials conducted under Biovests Investigational New Drug Application (IND) have studied BiovaxID in non-Hodgkins
lymphoma. These studies include a Phase 2 clinical trial and a Phase 3 clinical trial in patients with FL, as well as, a Phase 2 clinical trial in MCL patients. The Company believes that these clinical trials have demonstrated that BiovaxID, which
is personalized and autologous (derived from a patients own tumor cells), has an excellent safety profile and is effective in the treatment of these lethal diseases. Biovest is currently preparing for discussions with the U.S. Food and Drug
Administration (FDA) and international agencies regarding regulatory approvals of BiovaxID for FL and MCL based on these clinical trials. Biovest expects BiovaxID may also have applications in other forms of B-cell lymphomas.

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

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

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

As of March 31, 2009, the Company is a 75% owned subsidiary of Accentia Biopharmaceuticals, Inc. (Accentia).



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



2. Chapter 11 bankruptcy:

On November 10, 2008, Biovest, along with its subsidiaries, Biovax, Inc., AutovaxID, Inc., Biolender, LLC and Biolender II, LLC
(collectively, the Debtors) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (Chapter 11) in the U.S. Bankruptcy Court for the Middle District of Florida, Tampa Division
(the Bankruptcy Court). During the pendency of the Chapter 11 proceedings, the Debtors will operate its business as a debtor-in-possession in accordance with the provisions of Chapter 11, and will be subject to the jurisdiction of
the Bankruptcy Court. With existing cash flow and the potential for relatively near-term significant business development opportunities for
BiovaxID® and AutovaxID, the Chapter 11 proceedings are intended to provide an opportunity for the Company
to restore shareholder value and to pay all secured and unsecured creditors. Under protection of the Bankruptcy Court, Biovest plans to implement a series of initiatives designed to significantly decrease operating expenses and financing costs, and
focus cash and resources on its priority programs that will allow the Company to attract key funding/partnering opportunities. The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will
continue as a going concern once it emerges from Chapter 11. The Company's ability to continue as a going concern is dependent upon, among other things, its ability to successfully restructure its indebtedness and to emerge from bankruptcy with a
viable plan for reorganization and with adequate liquidity. The Company believes the Chapter 11 reorganization will achieve these objectives but the Company can provide no assurances. During this reorganization process, Biovest expects to continue
operations without interruption, while striving to maximize long-term shareholder value.

Under section 362 of the Bankruptcy Code,
actions to collect most of the Debtors prepetition liabilities, including payments owing to vendors in respect of goods furnished and services provided prior to the petition date, are automatically stayed and other contractual obligations of
the Debtors generally may not be enforced. Shortly after the petition date, the Debtors began notifying all known actual or potential creditors of the Debtors for the purpose of identifying all prepetition claims against the Debtors. The
Chapter 11 filings triggered defaults on substantially all debt obligations of the Debtors. The stay provisions of section 362 of the Bankruptcy Code, however, also apply to actions to collect prepetition indebtedness or to exercise
control over the property of the Debtors estate in respect of such defaults. The rights of and ultimate payments by the Debtors under prepetition obligations will be addressed in any plan of reorganization and may be substantially altered by
the plan of reorganization. This could result in unsecured claims being compromised at less, and possibly substantially less, than 100% of their face value. For additional information, refer to Note12, Liabilities Subject to Compromise.

3. Significant accounting policies:

Basis of presentation:

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

Operating results for the six months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the entire fiscal
year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2008.

Principles of Consolidation:

The
condensed consolidated financial statements represent the consolidation of wholly-owned companies and interests in variable interest entities where the Company has a controlling financial interest or has been determined to be the primary beneficiary
under Financial Accounting Standards Board (FASB) Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46R).



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



The condensed consolidated financial statements include Biovest International, Inc., its wholly owned
subsidiaries Biovax, Inc., and AutovaxID, Inc.; and certain variable interest entities of the Company, Biolender, LLC, Biolender, II LLC, Biovax Investment LLC, Telesis CDE Two LLC, AutovaxID Investment LLC, and St. Louis New Markets Tax Credit Fund
II LLC (Notes 15 and 16)

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

Voluntary Petition for Bankruptcy:

On
November 10, 2008, the Debtors filed voluntary petitions for relief under Chapter 11. The Debtors will continue to operate their business as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance
with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

American Institute of Certified Public Accountants
Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code (SOP 90-7), which is applicable to companies in Chapter 11, generally does not change the manner in which
financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization
from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as
reorganization items in the statements of operations beginning in the quarter ending December 31, 2008. The balance sheet must distinguish prepetition liabilities subject to compromise from both those prepetition liabilities that are not
subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided
by reorganization items must be disclosed separately in the statement of cash flows. Biovest adopted SOP 90-7 effective on November 10, 2008 and will segregate those items as outlined above for all reporting periods subsequent to such
date.

Use of estimates in the preparation of financial statements

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

Inventories:

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

Property and equipment:

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

Reorganization value in excess of amounts allocated to identifiable assets:

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

Patents and trademarks:

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

Deferred Financing Costs:

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



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THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



Contractual Interest Expense:

Contractual interest expense represents amounts due under the contractual terms of outstanding debt, including debt subject to compromise for which
interest expense may not be recognized in accordance with the provisions of SOP 90-7. The Companys voluntary petition for bankruptcy on November 10, 2008 triggered default provisions on certain of the Companys pre-petition
debt, which allow for the accrual of additional interest and fees above the contractual rate. The Company recorded interest expense at the default rate on all of its pre-petition debt for the six months ended March 31, 2009 due to the uncertain
nature of the provisions of the plan of reorganization to be filed with the Court at a future date.

Financial instruments:

Financial instruments, as defined in Financial Accounting Standard No. 107 Disclosures about Fair Value of Financial Instruments(FAS 107),
consist of cash, evidence of ownership in an entity and contracts that both (i) impose on one entity a contractual obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on
potentially unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first entity or (b) to exchange other financial instruments
on potentially favorable terms with the first entity. Accordingly, the Companys financial instruments consist of cash, accounts receivable, accounts payable, accrued liabilities, notes payable, long-term debt, royalty liabilities, and
derivative financial instruments.

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

Derivative instruments:

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

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

The Company reports its derivative liabilities at fair value on the accompanying consolidated
balance sheets as of March 31, 2009 and September 30, 2008.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



Revenue recognition:

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

Revenues from contract cell production services are recognized using the percentage-of-completion method, measured by the percentage of contract costs
incurred to date compared to estimated total costs for each contract. Contract costs include all direct material, subcontract and labor costs and those indirect costs related to contract performance, such as indirect labor, insurance, supplies and
tools. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to
revenues, costs and profits and are recognized in the period such revisions are determined. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change in the near term. The asset
costs and estimated earnings in excess of billings on uncompleted contracts represents revenues recognized in excess of amounts billed. Such revenues are expected to be billed and collected within one year on uncompleted contracts. The
liability billings in excess of costs and estimated earnings on uncompleted contracts represents billings in excess of revenue recognized.

Research and development expenses:

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

Shipping and handling costs:

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

Recent accounting pronouncements:

In
September 2006, the FASB issued FASB Statement No. 157 (FAS 157). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is a relevant measurement
attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current valuation and accounting practices. For fiscal years beginning after
November 15, 2007, we were required to implement FAS 157 for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in the financial statements. FAS 157
implementation for other non-financial assets and liabilities, has been deferred to fiscal years beginning after November 15, 2008. Earlier application is permitted provided that the reporting entity has not yet issued financial statements for
that fiscal year. This Statement did not have a material impact upon our financial statements.

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. We do not
expect SFAS 159 to have a material impact on our consolidated financial statements and elected not to adopt the fair value option for any recognized financial assets and liabilities as permitted by SFAS 159.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations(SFAS 141(R)). SFAS 141(R)
establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired.
SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. Earlier
adoption is prohibited. The adoption of this standard is not expected to have a material effect on our results of operations or financial position.



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THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



In December 2007, the FASB issued FAS No. 160, Non-controlling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51. FAS No. 160, amends ARB No. 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial
statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the
face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. This will require a reclassification of non-controlling interests in variable interest entities
on our consolidated balance sheet to equity and the elimination of non-controlling interest in losses from variable interest entities on our consolidated statement of operations once adopted for our fiscal year beginning October 1, 2009.
Earlier adoption is prohibited.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities(SFAS 161). This statement requires companies to provide enhanced disclosures about (a) how and why they use derivative instruments, (b) how derivative instruments and related hedged items are accounted for
under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a companys financial position, financial performance, and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted SFAS 161 for the quarter ended March 31, 2009. These expanded disclosures have been included in Note 11 below.

In May 2008, the FASB issued FASB Staff Position APB 14-1 (FSP APB 14-1), Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a
manner reflective of the issuers nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008
and interim periods within those fiscal years. Early adoption is not permitted and retroactive application to all periods presented is required. Currently, the convertible debt we have issued does not fall within the scope of FSP APB 14-1
and thus we do not expect the adoption of APB 14-1 will have any impact on our consolidated financial statements.

In April 2008, the FASB
issued FASB Staff Position SOP 90-7-1 (FSP SOP 90-7-1), An Amendment of AICPA Statement of Position 90-7. FSP SOP 90-7-1 resolves the conflict between the guidance requiring early adoption of new accounting
standards for entities required to follow fresh-start reporting under SOP 90-7, and other authoritative accounting standards that expressly prohibit early adoption. Specifically, FSP SOP 90-7-1 will require an entity emerging from
bankruptcy that applies fresh-start reporting to follow only the accounting standards in effect at the date fresh-start reporting is adopted, which include those standards eligible for early adoption if an election is made to adopt early.

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

In April 2009, the FASB issued FSP SFAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP SFAS
No. 107-1 and APB 28-1). FSP SFAS No. 107-1 and APB 28-1 expands the fair value disclosures required for all financial instruments within the scope of SFAS 107 to interim reporting periods. This FSP also amends APB Opinion
No. 28, Interim Financial Reporting to require those disclosures in summarized financial information at interim reporting periods. This interpretation is effective for interim reporting periods ending after June 15, 2009 (April
1, 2009 for the Company).



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



4. Liquidity and management plans:

During the six months ended March 31, 2009, the Company incurred a net loss of $5.8 million. At March 31, 2009, the Company had an accumulated
deficit of approximately $123.0 million and working capital deficit of approximately $46.0 million which includes liabilities subject to compromise through the Companys Chapter 11 proceedings. The Companys independent auditors
issued a going concern uncertainty on the financial statements for the year ended September 30, 2008, citing significant losses and working capital deficits at that date, which raised substantial doubt about the Companys
ability to continue as a going concern.

Regulatory strategy and commercialization expenditures:

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

Issuance of common stock:

In October
2008, the Company issued 1,064,306 shares of its common stock in satisfaction of interest and fees due on its outstanding debt.

Advances
to the Company by Accentia:

For the six months ended March 31, 2009, the Company borrowed an additional $0.6 million to increase the
total balance due to Accentia to approximately $12.4 million. The advances by Accentia as of March 31, 2009, consist of cash loans, payments directly to third parties on the Companys behalf, allocated inter-company expenses, accrued
interest of $1.9 million, and amounts owed in connection with the conversion of notes outstanding at the time of Accentias initial investment in June 2003. The balance of the inter-company loans is evidenced by three secured promissory demand
notes which accrue interest at the prime rate and are due on demand. On February 5, 2008, the terms of these notes were modified to allow Accentia the option (the Conversion Option) to convert part or all of the principal and
interest due into shares of the Companys common stock at a conversion price of $1.10 per share (the Conversion Price) subject to adjustment in the event of certain recapitalizations or in the event of the sale of our stock at
prices below the Conversion Price. In September 2008, as provided for under the adjustment provisions of the Conversion Option, the conversion price was modified to allow Accentia to convert part or all of the principal and interest due into shares
of the Companys common stock at a conversion price of $0.32 per share. The Company granted piggyback and demand registration rights to Accentia for the shares underlying this Conversion Option. As a result of our filing of Chapter 11 on
November 10, 2008, collection of pre-petition amounts due on these notes in the amount of $12.0 million has been stayed and the Conversion Option may not be enforced.

Debtorin-Possession Financing:

On
December 22, 2008, the Company completed the closing of a debtor in possession financing transaction (the DIP Transaction) with Corps Real, LLC, a Illinois limited liability company (Corps Real), the principal owner is a
director of or affiliated with directors of the Company (the DIP Lender). Pursuant to the transaction, the DIP Lender provided to the Company a secured line of credit in an amount of up to $3.0 million in accordance with an order
entered by the Bankruptcy Court. As of March 31, 2009, the DIP Lender has advanced $0.5 million to the Company.



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BIOVEST INTERNATIONAL, INC AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



Termination of Leases:

We leased approximately 17,000 square feet in Worcester, Massachusetts, which we used for
BiovaxID® production, contract cell production, offices, and storage. We had extended our lease term on this
facility through February 28, 2010. As of December 8, 2008, the Court in the Companys pending Chapter 11 reorganization proceeding entered an Order confirming the rejection and termination of this Worcester lease, and we no longer
occupy these premises.

On December 1, 2008, the Company amended its lease in St. Louis, Missouri, which shortened the lease term to
November 30, 2009 and decreased the leased premises to 10,000 square feet. On March 31, 2009, pursuant to the terms of the amended lease, the Company terminated the lease.

Additional expected financing activity:

Management intends to attempt to meet its cash requirements through proceeds from its cell culture and instrument manufacturing activities, the use of
cash on hand, trade vendor credit, restructuring of our outstanding debt obligations through the Chapter 11 reorganization proceedings, short-term borrowings, debt and equity financings, and strategic transactions such as collaborations and
licensing. The Companys ability to continue present operations, pay its liabilities as they become due, and meet its obligations for vaccine development is dependent upon the Companys ability to obtain significant external funding in the
very short term. Additional sources of funding have not been established; however, additional financing is currently being sought by the Company from a number of sources, including the sale of equity or debt securities, strategic collaborations,
recognized research funding programs, as well as domestic and/or foreign licensing of the Companys vaccine. Management is currently in the process of exploring these various financing alternatives. There can be no assurance that the Company
will be successful in securing such financing at commercially acceptable terms, if at all. Accordingly, our ability to continue present operations, pay our existing liabilities as they become due, and the completion of the detailed analyses of our
clinical trial is dependent upon our ability to successfully complete the Chapter 11 reorganization process and to obtain significant external funding from sources other than Accentia in the very near term, which raises substantial doubt about our
ability to continue as a going concern. If adequate funds are not available from the foregoing sources in the near term, or if the Company determines it to otherwise be in the Companys best interest, the Company may consider additional
strategic financing options, including sales of assets, or the Company may be required to delay, reduce the scope of, or eliminate one or more of its research or development programs or curtail some or all of its commercialization efforts.

5. Concentrations of credit risk and major customer information:

The Company grants credit to customers in the normal course of business and generally does not require collateral or any other security to support amounts
due. Management performs ongoing credit evaluations of its customers. For the three months ended March 31, 2009, two customers accounted for 24% of revenues. Three customers accounted for 44% of revenues for the three months ended
March 31, 2008. One customer accounted for 14% of revenues for the six months ended March 31, 2009, while three customers accounted for 55% of revenues for the six months ended March 31, 2008. At March 31, 2009, three customers
accounted for 66% of trade accounts receivable. A significant amount of the Companys revenue has been derived from export sales. The Companys export sales were 24% and 30% of revenues for the three and six months ended March 31,
2009, compared to 37% and 45% for the three and six months ended March 31, 2008. For the three months ended March 31, 2009, sales to customers in Canada accounted for 14% of total revenue, while sales to customers in the United Kingdom
accounted for 24% of total revenue for the three months ended March 31, 2008. For the six months ended March 31, 2009, sales to customers in the United Kingdom and Canada accounted for 14% and 10% of total revenue respectively, while sales
to the same two countries accounted for 28% and 13% of total revenue for the six months ended March 31, 2008.



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(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



6. Inventories:

Inventories consist of the following:



|                |  |                           |         |                   |   |        
|--------------- |  | ------------------------- | ------- | ----------------- | - | -------
|                |  | March 31, 2009(Unaudited) |         | September 30,2008
|Finished goods  |  | $                         | 82,000  |                   | $ | 172,000
|Work-in-process |  |                           | 77,000  |                   |   | 67,000 
|Raw materials   |  |                           | 415,000 |                   |   | 370,000
|                |  |                           |         |                   |   |        
|                |  | $                         | 574,000 |                   | $ | 609,000
|                |  |                           |         |                   |   |        

7. Notes payable

As a result of the Companys Chapter 11 filings on November 10, 2008, the notes outstanding listed in the table below as of September 30,
2008 became prepetition indebtedness under the Debtors plan of reorganization. Accordingly, these obligations have been classified as Liabilities subject to compromise in the Companys condensed consolidated balance sheet as
of March 31, 2009. See Note 12 for further details.

Notes payable consists of the following:



|                                                                                                            |  |               |   |                   |   |           
|----------------------------------------------------------------------------------------------------------- |  | ------------- | - | ----------------- | - | ----------
|                                                                                                            |  | March 31,2009 |   | September 30,2008
|Pulaski Bank and Trust Company, $1,000,000 face value, prime rate, note payable                             |  | $             |  |                   | $ | 600,000   
|Pulaski Bank and Trust Company, $750,000 face value, prime rate, note payable                               |  |               |  |                   |   | 450,000   
|Southwest Bank of St. Louis, an M& I Bank, $200,000 face value, prime rate plus 1.0%, note payable          |  |               |  |                   |   | 200,000   
|Valens Offshore SPV II, Corp, $3,600,000 face value, 30% note payable                                       |  |               |  |                   |   | 4,680,000 
|Valens U.S. SPV I, LLC, $4,900,000 face value, 30% note payable                                             |  |               |  |                   |   | 6,370,000 
|Note Payable, $300,000 face value, plus $300,000 in shares of the Companys common stock due upon maturity* |  |               |  |                   |   | 624,000   
|Other                                                                                                       |  |               |  |                   |   | 22,000    
|Accrued interest and fees                                                                                   |  |               |  |                   |   | 1,412,000 
|                                                                                                            |  |               |   |                   |   |           
|                                                                                                            |  | $             |  |                   | $ | 14,358,000
|                                                                                                            |  |               |   |                   |   |           



|* | On September 10, 2007, the Company issued a promissory note to a private third-party individual investor in the amount of $0.3 million. The note initially bore no
interest, except in the case of default, at which point interest would begin to accrue at 18.0% per annum. Under the terms of the note all principal was originally due on September 9, 2008. The note is an unsecured obligation of the
Company and is subordinated to the Companys outstanding loans to Laurus Master Fund, Ltd. (Laurus), Valens U.S. SPV I, LLC and Valens Offshore SPV II, Corp. (collectively, the Valens Funds).. Under the terms of the note, the Company issued
947,867 shares of the Companys common stock to the note holder on October 15, 2008 (representing a fair value of $0.3 million) in addition to the $0.3 million in principal due under the note. The Company used the effective interest method
to accrete the fair value of these shares as interest expense throughout the term of the note.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On
September 9, 2008, the note was modified to extend the maturity date to the October 15, 2008. In consideration for this extension, the note holder was issued warrants to purchase 375,000 shares of the Companys common stock at an
exercise price of $0.40 per share. The warrants expire five years from issue date.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



On October 15, 2008, the note holder elected to exchange this note for a secured
debenture in the gross amount of $0.3 million. The details of the debenture financing are further discussed in Note 9 below. Commencing March 31, 2009, monthly amortizing principal payments are to be paid in cash, or at the Companys
election and subject to certain restrictions, in shares of the Companys common stock at a conversion price which is the lesser of: a) $0.32 per share or; b) 90% of the volume-weighted average price of the Companys common stock for the 20
trading days prior to payment date. The maturity date of the debenture is March 31, 2010. Any principal outstanding prior to maturity date may be converted, at holders election, into shares of the Companys common stock at a
conversion price of $0.32 per share. The debenture also has an optional redemption feature whereby the Company, subject to certain restrictions, may elect to redeem part or all of outstanding principal for the Companys common stock. The
debenture holder received 468,750 warrants to purchase the Companys common stock at $0.40 per share. The warrants expire five years from issuance.

Components of the newly issued secured convertible debenture met the definition of derivative financial instruments and required bifurcation under
Financial Accounting Standard No. 133 Accounting for Derivative Financial Instruments and Hedging Activities (SFAS 133). The resulting derivative liabilities are further discussed in Note11. Proceeds from the debenture were
allocated to debt and derivative liabilities based on the relative fair values of the debt and derivatives. The resulting discount on the debt will be amortized to interest expense over the term of the debentures using the effective interest method.

8. Long-term debt

As a
result of the Companys Chapter 11 filings on November 10, 2008, the long term debt outstanding listed in the table below as of September 30, 2008 became prepetition indebtedness under the Debtors plan of reorganization.
Accordingly, these obligations have been classified as Liabilities subject to compromise in the Companys condensed consolidated balance sheet as of March 31, 2009. See Note 12 for further details.

Long-term debt consists of the following:



|                                                                                              |  |               |   |                   |   |            |  
|--------------------------------------------------------------------------------------------- |  | ------------- | - | ----------------- | - | ---------- | -
|                                                                                              |  | March 31,2009 |   | September 30,2008 |  
|Laurus $7,799,000 face value, 30% interest non-amortizing note payable                        |  | $             |  |                   | $ | 6,768,000  |  
|Valens Offshore SPV II, Corp, $255,000 face value, 30% interest non-amortizing note payable   |  |               |  |                   |   | 291,000    |  
|Valens U.S. SPV I, LLC, $245,000 face value, 30% interest non-amortizing note payable         |  |               |  |                   |   | 280,000    |  
|Valens U.S. SPV I, LLC, $650,000 face value, 15% secured convertible debenture, less discount |  |               |  |                   |   | 62,000     |  
|Notes payable, interest at 10%; convertible into common stock at $1.00 per share              |  |               |  |                   |   | 35,000     |  
|Other                                                                                         |  |               |  |                   |   | 87,000     |  
|Accrued interest and fees                                                                     |  |               |  |                   |   | 2,162,000  |  
|                                                                                              |  |               |   |                   |   |            |  
|                                                                                              |  |               |  |                   |   | 9,685,000  |  
|Less current maturities                                                                       |  |               |  |                   |   | (9,623,000 | )
|                                                                                              |  |               |   |                   |   |            |  
|                                                                                              |  | $             |  |                   | $ | 62,000     |  
|                                                                                              |  |               |   |                   |   |            |  



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



9. Related party transactions

Notes payable, related party consists of the following:



|                                              |  |               |           |                   |   |            |  
|--------------------------------------------- |  | ------------- | --------- | ----------------- | - | ---------- | -
|                                              |  | March 31,2009 |           | September 30,2008 |  
|Accentia promissory demand notes  prime rate |  | $             | 258,000   |                   | $ | 10,130,000 |  
|Secured convertible debenture  15%           |  |               |          |                   |   | 500,000    |  
|Unsecured convertible promissory note  10%   |  |               |          |                   |   | 1,000,000  |  
|Unsecured promissory note  prime plus 2%     |  |               |          |                   |   | 46,000     |  
|Debtor-in-possession note  16%               |  |               | 1,000,000 |                   |   |           |  
|Accrued interest                              |  |               | 22,000    |                   |   | 1,729,000  |  
|                                              |  |               |           |                   |   |            |  
|                                              |  |               | 1,280,000 |                   |   | 13,405,000 |  
|Less unamortized discounts                    |  |               |          |                   |   | (5,525,000 | )
|                                              |  |               |           |                   |   |            |  
|                                              |  | $             | 1,280,000 |                   | $ | 7,880,000  |  
|                                              |  |               |           |                   |   |            |  

Accentia promissory demand notes:

Notes payable, related parties includes amounts advanced under three secured promissory demand notes issued to Accentia, bearing interest at the prime
rate. On February 5, 2008, the terms of these notes were modified to allow Accentia the option to convert part or all of the principal and interest due into shares of the Companys common stock at a conversion price of $1.10 per share
subject to adjustment in the event of certain recapitalizations or in the event of the sale of our stock at prices below the conversion price. On September 22, 2008, as provided for under the adjustment provisions of the conversion option, the
conversion price was modified to allow Accentia to convert part or all of the principal and interest due into shares of the Companys common stock at a conversion price of $0.32 per share. The Company granted piggyback and demand registration
rights to Accentia for the shares underlying this Conversion Option.

Management concluded that the
February 5thmodification added a substantive
conversion option to these notes and thus applied debt extinguishment accounting to the transaction resulting in a $4.9 million gain on modification, recorded as an increase in additional paid-in capital on the Companys consolidated balance
sheet as of December 31, 2008. The new debt instrument was recorded at a discount to the carrying value of the notes prior to modification and will be amortized over the expected repayment term of the notes, a three year period.

The balance due under these notes was $12.0 million, including accrued interest, as of November 10, 2008, the date of the Companys voluntary
petition for Chapter 11 protection, and has been reclassified to liabilities subject to compromise on the Companys condensed consolidated balance sheet as of March 31, 2009 (Note 12). Since filing for Chapter 11, the Company has continued
to draw on this line of credit through payments made by Accentia directly to third parties on the Companys behalf as well as through the allocation of inter-company expenses for shared resources. Additionally, the Company has continued to
accrue interest at prime on the outstanding principal due under the note.

Secured Convertible Debenture:

On September 22, 2008, the Company entered into definitive agreements with three investors, all of whom are affiliates, related to a private
placement of its 15% Secured Convertible Debentures (the Debentures). The definitive documents permit the Company to place up to $5.0 million in principal amount of its Debentures (the Private Placement). The Company has sold
$1.15 million in principal amount of its Debentures (the Initial Tranche) and sold an additional $0.3 million in principal amount of its Debentures to another individual investor effective as of October 15, 2008
(the Second Tranche).

On September 26, 2008, the Company exchanged the September 11, 2007 and October 12,
2007 unsecured promissory notes outstanding to two of its directors in the gross amount of $0.5 million for Debentures in the gross amount of $0.5 million. The Company issued to these two directors warrants to purchase a total of 0.625 million
shares of Biovest common stock at an exercise price of $0.40 per share, which vested immediately and expire in five years. These warrants were issued in consideration of the agreement of these purchasers to extend the maturity date of their
promissory notes which had previously reached maturity and then exchanged into the terms of the Debentures discussed above.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



On October 29, 2008, and effective as of October 15, 2008, the Company exchanged the
September 9, 2007 unsecured promissory note to a third-party investor , which had been amended and restated as of October 15, 2008, for Debentures in the gross amount of $0.3 million. The Company also agreed to issue to the purchaser in
the Second Tranche warrants to purchase a total of 0.375 million shares of the Companys common stock at an exercise price of $0.40 per share, vested immediately with a five-year term. These warrants were issued in consideration of the
agreement of this purchaser to extend the maturity date of his existing promissory note which had previously reached maturity.

The Debentures
are convertible into the Companys common stock at $0.32 per share (the Conversion Price) and, provided certain conditions are satisfied, the Company may, at its option, redeem the Debentures for an amount equal to 110% of the
then outstanding principal. Each purchaser of Debentures in the Private Placement has the right to elect to be repaid in one of the following methods: a) Commencing six months after closing, the Debentures will be amortized through twelve
equal monthly payments; or b) A single lump-sum payment of all remaining outstanding principal and accrued interest shall be made on March 31, 2010. All principal amortization payments and monthly interest payments will be made in cash or the
Company may elect to make the payments in shares of its common stock. The Companys ability to pay interest with shares of Company common stock will be subject to specified conditions, including the existence of an effective registration
statement covering the resale of the shares issued in payment of redemption amount unless the shares may be resold pursuant to Rule 144 without volume or manner-of-sale restrictions or current public information requirements. Any common stock
delivered in satisfaction of an amortization payment will be valued at the lesser of (i) the conversion price in effect at the time of the amortization payment or (ii) 90% of the average of the daily volume weighted average price of the
shares for the 20 trading days prior to the amortization payment date. The Company has the ability to make payment of interest with shares of the Companys common stock if the conditions stated herein are not met, upon the consent of the
holder of the Debenture, and in that event the common stock delivered in satisfaction of an amortization payment will be valued at the lesser of (i) the conversion price in effect at the time of the amortization payment or (ii) 80% of the
average of the daily volume weighted average price of the shares for the 20 trading days prior to the amortization payment date.

As a part of
the Initial Tranche of the Private Placement, the Company issued Warrants to the purchasers of the Debentures giving them the right to purchase 1,796,875 shares of the Companys common stock at an exercise price of $0.40 per share (the
Exercise Price). The warrant exercise prices are subject to adjustment for stock splits, stock dividends, and the like. Additionally, the Debentures issued in the Initial Tranche permit the holders to convert into 3,593,750 shares of the
Companys common stock.

As a part of the Second Tranche of the Private Placement, the Company issued Warrants to the purchaser of the
Debentures giving him the right to purchase 468,750 shares of the Companys common stock at an exercise price of $0.40 per share (the Exercise Price). Additionally, the Debentures issued in the Second Tranche permit the holder
to convert into 937,500 shares of the Companys common stock. In addition, the Company issued a total of 947,867 shares of its unregistered common stock to the purchaser of the Second Tranche of the Debentures in payment of an Amended and
Restated Promissory Note which was converted into an investment in the Debentures.

In the event that the Company issues or grants in the
future any rights to purchase any of the Companys common stock, or other securities convertible into the Companys common stock, for an effective per share price less than the Conversion Price or in the instance of warrants the Exercise
Price then in effect, the conversion price of all unconverted Debentures and the Exercise Price of all unexercised Warrants will be decreased to equal such lower price. The above-described adjustments to the Conversion Price and Exercise Price for
future stock issuances by the Company will not apply to certain exempt issuances, including stock issuances pursuant to employee stock option plans and strategic transactions.

Management concluded that the
September 26thmodifications added a substantive
conversion option to the pre-existing notes and thus applied debt extinguishment accounting to the transaction resulting in a $156,000 loss on extinguishment of debt recorded on the Companys consolidated statement of operations for the year
ended September 30, 2008. Furthermore, the newly issued secured convertible debentures meet the definition of derivative financial instruments and require bifurcation under Financial Accounting Standard No. 133 Accounting for Derivative
Financial Instruments and Hedging Activities (SFAS 133). The resulting derivative liabilities are further discussed in Note11. Proceeds from the debenture were allocated to debt and derivative liabilities based on the relative fair
values of the debt and derivatives. The resulting discount on the debt will be amortized to interest expense over the term of the debentures using the effective interest method. The entire balance due under these notes has been reclassified to
Liabilities subject to compromise on the Companys condensed consolidated balance sheet as of March 31, 2009 (Note 12).



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



Unsecured convertible promissory note:

On May 9, 2008, the Company entered into a financing transaction with one of the Companys directors, whereby the Company
issued a convertible promissory note in the amount of $1.0 million, bearing interest at 10% and with a maturity date of the earlier to occur of one year from the date of issuance, or, at the election of the lender, upon closing of a financing
transaction resulting in net proceeds to the Company of at least $15.0 million. Interest only is payable monthly and may be paid by issuance of the Companys restricted common stock, calculated at a price of $0.50 per share. At any time after
issuance of the note the lender may elect to convert all or any portion of the outstanding principal and accrued interest on the note into common stock of the Company, at a conversion price equal to $0.50 per share. As part of this transaction the
Company issued to the lender a warrant to purchase up to 2.0 million shares of the Companys common stock at an exercise price of $0.50 per share, with cashless exercise provisions and a 7-year term. In addition, the Company entered
into an option agreement with the lender whereby the lender may elect, at any time before the earlier to occur of i) notice of a signed term sheet for a financing of specified magnitude or ii) maturity of the note as defined therein, to
increase his loan by an amount of up to the full original loan amount ($1.0 million) upon the same terms as contained in the original note, including issuance of additional warrants with the same term, exercise price, and cashless exercise
provisions. As a result of this transaction, the Conversion Price applicable to certain other agreements of the Company was adjusted to equal the conversion/warrant exercise price set forth in this transaction.

Under the Emerging Issues Task Force (EITF) No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios , and EITF No. 00-27, Application of Issue 98-5 to Certain Convertible Instruments, the Company is required to value the warrants and beneficial conversion feature granted with this debt
(BCF) separately from the note. EITF No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, provides guidance for distinguishing between permanent equity, temporary
equity and assets and liabilities. The warrants issued with the debt, as well as the option agreement with the lender, whereby the lender may elect to increase his loan by an additional $1.0 million meets the requirements of EITF No. 00-19 and
were accounted for as an equity instrument. As such, this option has not been accounted for as a derivative (which would be marked to market each reporting period) and in the event the option is exercised, no gain or loss is recognized. The value
assigned to the warrants ($0.25 million), the BCF ($0.36 million) and the option agreement ($0.39 million) was initially recorded as a discount to the face value of the note and an offsetting increase to additional paid-in capital. The debt discount
($1.0 million aggregate) will be amortized to interest expense over the life of the note under the effective interest method. The entire balance due under these notes has been reclassified to Liabilities subject to compromise on the
Companys condensed consolidated balance sheet as of March 31, 2009 (Note 12).

Unsecured promissory note:

On September 26, 2007, the Company issued an unsecured promissory note to a shareholder of Accentia in the amount of $46,015. This loan bears
interest at prime plus 2.0% and is payable October 1, 2009. The Company issued five-year warrants to purchase 25,099 shares of the Companys common stock at $1.10 per share in conjunction with this loan. Proceeds from this note were
allocated to debt and stockholders equity based on the relative fair values of the debt and the warrants. The entire balance due under these notes has been reclassified to Liabilities subject to compromise on the Companys
condensed consolidated balance sheet as of March 31, 2009 (Note 12).

Debtor-in-possession note:

On December 22, 2008, the Company completed the closing of the DIP Transaction with the DIP Lender. Pursuant to the transaction, the DIP Lender
provided to the Company a secured line of credit in an amount of up to $3.0 million in accordance with an order entered by the Bankruptcy Court. As of March 31, 2009, the DIP Lender had advanced $1.0 million to the Company.

The DIP Transaction was memorialized by a Secured Promissory Note (the DIP Note) and Security Agreement dated December 22, 2008. The
following describes certain material terms of the DIP Transaction:



| |  |  | Principal Amount- Up to $3.0 million
| | - |  | ------------------------------------



| |  |  | Priority and Security- The Facility is a secured super-priority loan to a Debtor-in-Possession and is secured by all assets of the Company that
is senior to all prior and existing liens of Biovest.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



| |  |  | Advances under the Facility- For all amounts in excess of $1.0 million, Lender and the Company shall within 30 days of the entry of the Initial
Order agree on a list of milestone events to be achieved by the Company through use of these Advances, and the Company shall be required to make a written request(s) detailing the amount and use and Lender shall in its reasonable
discretion approve or reject the written request based upon whether the Company demonstrates reasonable progress in achieving the agreed milestones.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Term- All loans outstanding under the Facility (the Loans)shall become due and payable on the earlier of:
(i) December 31, 2010; (ii) dismissal of the Chapter 11 Proceeding; (iii) conversion of the Chapter 11 Proceeding to a Chapter 7 Proceeding; or (iv) confirmation of the Companys Plan of Reorganization.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest- Loans will bear interest at 16% per annum computed on a daily basis based on the principal amount outstanding. Interest shall be
paid as follows: (i) 10% interest shall be paid monthly and (ii) 6% interest shall accrue and be paid at maturity.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Points- At the Closing, the Company paid in cash 4% of the initial $1.0 million of the Facility ($40,000). At the time that the Company borrows
in excess of $1.0 million, the Company shall pay in cash 4% of the second $1.0 million of the Facility ($40,000). At the time that the Company borrows in excess of $2.0 million, the Company shall pay in cash 4% of the third $1.0 million of the
Facility ($40,000).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expenses- The Company issued payment of $25,000 in costs at the Closing.
| | - |  | ------------------------------------------------------------------------



| |  |  | Prepayment- Loans may be prepaid at any time in an amount of $50,000 or multiples of $50,000 in excess thereof, provided, however, that the
Companys senior secured lender (Laurus and the Valens Funds) provides its consent to each prepayment via written notification to the Company and Lender.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10. Royalty liability

On April 17,
2007, the Company executed an amendment agreement with its senior lender, Laurus, to defer payments of principal on its $7.799 million loan. 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, and are required to be paid quarterly with $0.5 million of the minimum royalty having been paid 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 (discounted at an annual rate of 11%) due under the
Amendment. On November 10, 2008, the Company filed a voluntary petition for relief under Chapter 11 (Note 2). While the Company remains a debtor in possession under the Bankruptcy Code, it is not anticipated that payment will be made
on the royalty obligation. Managements estimate of the balance due on the royalty obligation has been reclassified to Liabilities subject to compromise on the Companys condensed consolidated balance sheet as of March 31,
2009.

11. Derivative liabilities

As a result of the Chapter 11 filings on November 10, 2008, derivative liabilities listed in the table below as of September 30, 2008 became
prepetition indebtedness under the Debtors plan of reorganization. Accordingly, these obligations have been classified as Liabilities subject to compromise in the Companys condensed consolidated balance sheet as of
March 31, 2009. See Note 12 for further details.

The Company adopted SFAS 161 for the quarter ended March 31, 2009. This
pronouncement did not have any impact on the financial position or operating results of the Company. SFAS 161 expanded the disclosures regarding the use of derivative instruments and hedging activities.



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BIOVEST INTERNATIONAL, INC AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



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

The following table discloses the fair value of the Companys derivative liabilities and their location in the
consolidated balance sheets as of March 31, 2009 and September 30, 2008. The Company held no asset derivatives at either reporting date.



|                                                                      |  |                                  |  |                    |         |                        |                        |           |   |        
|--------------------------------------------------------------------- |  | -------------------------------- |  | ------------------ | ------- | ---------------------- | ---------------------- | --------- | - | -------
|                                                                      |  | Liability Derivatives           
|                                                                      |  | March 31, 2009                   |  | September 30, 2008
|                                                                      |  | Balance Sheet Location           |  | FairValue          |         | Balance Sheet Location |                        | FairValue
|Derivatives designated as hedging instruments                         |  | none                             |  | $                  |        |                        | none                   |           | $ |       
|                                                                      |  |                                  |  |                   
|Derivatives not designated as hedging instruments                     |  |                                  |  |                    |         |                        |                        |           |   |        
|                                                                      |  |                                  |  |                   
|Biovax Investment, LLC investor put option (Note 15)                  |  | Liabilities subject tocompromise |  | $                  | 115,000 |                        | Derivative liabilities |           | $ | 109,000
|AutovaxID Investment, LLC investor put option (Note 15)               |  | Liabilities subject tocompromise |  |                    | 71,000  |                        | Derivative liabilities |           |   | 67,000 
|Derivatives resulting from issuance of Secured Convertible Debentures |  | Liabilities subject tocompromise |  |                    | 213,000 |                        | Derivative liabilities |           |   | 729,000
|                                                                      |  |                                  |  |                    |         |                        |                        |           |   |        
|Total derivatives not designated as hedging instruments               |  |                                  |  | $                  | 399,000 |                        |                        |           | $ | 905,000
|                                                                      |  |                                  |  |                   
|Total derivatives                                                     |  |                                  |  | $                  | 399,000 |                        |                        |           | $ | 905,000
|                                                                      |  |                                  |  |                    |         |                        |                        |           |   |        

Secured Convertible Debenture:

In September 2008, the Company issued to three investors, all of whom are affiliates, secured convertible debentures in the principal amount of $1.15
million. In October 2008 the Company issued to an individual investor a second tranche of secured convertible debentures in the principal amount of $0.3 million. The debentures issued embodied terms and features which met the definition of
derivative financial instruments under FAS 133  Accounting for Derivative Financial Instruments and Hedging Activities. The components of the derivative consist of an embedded conversion option, anti-dilution protection, mandatory
monthly redemption, detachable warrants as well as default and non-delivery puts. These derivative features were not afforded the exemption available to derivatives indexed to a companys own stock and accordingly have been bifurcated from the
host instrument and classified as a liability recorded at fair value.

12. Liabilities subject to compromise:

As a result of the Chapter 11 filings, the payment of prepetition indebtedness may be subject to compromise or other treatment under the
Debtors Plan of Reorganization. Although actions to enforce or otherwise effect payment of prepetition liabilities are stayed, at hearings held in November 2008, the Bankruptcy Court granted approval of the Debtors administrative
motions, generally designed to stabilize the Debtors operations and covering, among other things, human capital obligations, business operations, tax matters, cash management, utilities, case management and retention of professionals.



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(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



The Debtors have been paying and intend to continue to pay undisputed post-petition claims in the
ordinary course of business. In addition, the Debtors may reject prepetition executory contracts and unexpired leases with respect to the Debtors operations, with the approval of the Bankruptcy Court. Damages resulting from rejection of
executory contracts and unexpired leases are treated as general unsecured claims and will be classified as liabilities subject to compromise. On April 8, 2009, the Bankruptcy Court entered an order establishing June 1, 2009 as the claims
bar date. The claims bar date is the date by which claims against the Debtors arising prior to the Debtors Chapter 11 filings must be filed if the claimants wish to receive any distribution under a confirmed Plan of Reorganization in the
Chapter 11 process. On April 8, 2009, the Debtors commenced notification, including publication, to all known actual and potential creditors informing them of the claims bar date and the required procedures with respect to the filing of
proofs of claim. As part of the reorganization case, claims timely filed by the bar date will ultimately be reconciled against the amounts listed by the Debtors in their Schedules of Assets and Liabilities (as amended). To the extent that the
Debtors object to any filed claims, the Bankruptcy Court will make the final determination as to the amount, nature, and validity of such claims. Moreover, the treatment of allowed claims against the Debtors will be determined pursuant to the terms
of a Chapter 11 Plan of Reorganization approved by the Bankruptcy Court. Accordingly, the ultimate amount and treatment of such liabilities has not yet been determined.

SOP 90-7 requires prepetition liabilities that are subject to compromise to be reported at the amounts expected to be allowed, even if they may be
settled for lesser amounts. The amounts currently classified as liabilities subject to compromise may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of the
secured status of certain claims, the values of any collateral securing such claims, or other events.

Liabilities subject to compromise
consist of the following:



|                                                                                                |  |                |            |  
|----------------------------------------------------------------------------------------------- |  | -------------- | ---------- | -
|                                                                                                |  | March 31, 2009 |           
|Secured promissory notes payable to Laurus and its affiliates, the Valens Funds (Notes 7 and 8) |  | $              | 14,681,000 |  
|Secured promissory demand notes payable to Accentia (Note 9)                                    |  |                | 10,279,000 |  
|Secured convertible debentures  15% (Notes 8 and 9)                                            |  |                | 1,450,000  |  
|Unsecured promissory notes payable to Pulaski Bank and Trust Company (Note 7)*                  |  |                | 1,000,000  |  
|Unsecured promissory note payable to Southwest Bank of St. Louis (Note 7)*                      |  |                | 200,000    |  
|Unsecured convertible promissory note  10% (Note 9)                                            |  |                | 1,000,000  |  
|Minimum royalty due to Laurus on net sales of AutovaxID instrumentation (Note 10)               |  |                | 7,500,000  |  
|Accounts payable                                                                                |  |                | 3,817,000  |  
|Derivative liabilities (Note 11)                                                                |  |                | 399,000    |  
|Provision for indemnity agreements*                                                             |  |                | 916,000    |  
|Provision for rejected lease**                                                                  |  |                | 644,000    |  
|Other                                                                                           |  |                | 1,120,000  |  
|Accrued interest                                                                                |  |                | 9,240,000  |  
|                                                                                                |  |                |            |  
|                                                                                                |  |                | 52,246,000 |  
|Less: unamortized discounts                                                                     |  |                | (6,157,000 | )
|                                                                                                |  |                |            |  
|                                                                                                |  | $              | 46,089,000 |  
|                                                                                                |  |                |            |  



|* | The notes issued to Pulaski Bank and Trust Company (Pulaski Bank) and Southwest Bank of St. Louis (Southwest Bank), are guaranteed by
individuals affiliated with the Company or Accentia. The Company agreed to indemnify and hold harmless each guarantor should their guarantees be called by the lenders. In addition, in the event of default by the Company resulting in a payment to the
lender by the guarantors, the Company agreed to compensate each affected guarantor by issuance of that number of shares of the Companys restricted common stock determined by dividing 700% of the amount guaranteed by $1.10. On December 29,
2008, Pulaski Bank called the guarantees resulting in an aggregate payment of $1.0 million by the guarantors. In January 2009, Southwest Bank called the guarantee resulting in an aggregate payment of $0.2 million by the guarantor. As a result of
their indemnification agreements, the Pulaski Bank and Southwest Bank guarantors are expected to assert an unsecured claim for the value of approximately 7.6 million shares of the Companys common stock, which are recorded as having a fair
value of $916,000 as of March 31, 2009.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | In an effort to decrease operating expenses, the Company through its Chapter 11 bankruptcy proceedings rejected its lease in Worcester, Massachusetts on
December 8, 2008. The Company recorded a provision of $644,000 to allow for damages resulting from the rejection of this unexpired lease, which are treated by the bankruptcy code as general unsecured claims and are limited to either 15 percent
of the balance of the rent reserved in the lease or the rent reserved for one year from the filing date or the date the premises were surrendered, whichever is earlier.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



13. Stock based compensation:

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton valuation model that uses assumptions for expected
volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on historical volatility of 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. This method is used because the Company does not currently have adequate
historical option exercise or forfeiture information as a basis to determine expected term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term.

Common stock options outstanding and exercisable as of March 31, 2009 are as follows:



|                                  |  |            |   |  |                           |      |                                   |       |                          |   |        
|--------------------------------- |  | ---------- | - |  | ------------------------- | ---- | --------------------------------- | ----- | ------------------------ | - | -------
|                                  |  | Shares     |   |  | WeightedAve.ExercisePrice |      | Weighted AveContractualLife (yrs) |       | AggregateIntrinsic Value
|Outstanding at September 30, 2008 |  | 9,471,796  |   |  | $                         | 0.72 |                                   | 6.77  |                          | $ |       
|Granted                           |  | 6,290,000  |   |  |                           | 0.06 |                                   | 10.70 |                          |   | 370,000
|Exercised                         |  |           |   |  |                           |     |                                   |      |                          |   |       
|Cancelled                         |  | (2,852,038 | ) |  |                           | 0.62 |                                   | 7.25  |                          |   |       
|Outstanding at March 31, 2009     |  | 12,909,758 |   |  |                           | 0.42 |                                   | 7.17  |                          |   | 370,000
|                                  |  |            |   | 
|Exercisable at March 31, 2009     |  | 6,606,425  |   |  | $                         | 0.76 |                                   | 5.72  |                          | $ |       

On February 24, 2009,
the Companys board of directors (the Board) authorized the issuance of incentive stock options under the Companys 2007 Equity Incentive Plan to the Companys employees as well as the issuance of non-qualified stock
options to the members of the Board. Options were granted to purchase approximately 6.3 million shares of the Companys common stock, with the options vesting as follows: (i) one-third upon the confirmation of the Companys plan for
reorganization; (ii) one-third 90 days following the confirmation of the Companys plan and; (iii) one-third 180 days following the confirmation of the Companys plan. Due to the conditional vesting provisions of this grant, no
expense will be recognized in the Companys financial statements until the Companys plan for reorganization has been confirmed by the Court.

Non-vested employee stock options:



|                                 |  |           |   |  |                                  |     
|-------------------------------- |  | --------- | - |  | -------------------------------- | ----
|                                 |  | Shares    |   |  | Weighted AveGrant-DateFair Value
|Non-vested at September 30, 2008 |  | 358,334   |   |  | $                                | 0.31
|Granted                          |  | 6,290,000 |   |  |                                  | 0.04
|Vested                           |  | (6,667    | ) |  |                                  | 0.43
|Cancelled                        |  | (338,334  | ) |  |                                  | 0.30
|Non-vested at March 31, 2009     |  | 6,303,333 |   |  | $                                | 0.06

Common stock warrants outstanding and
exercisable as of March 31, 2009 are as follows:



|                                  |  |            |  |                       |     
|--------------------------------- |  | ---------- |  | --------------------- | ----
|                                  |  | Shares     |  | WeightedAverage Price
|Outstanding at September 30, 2008 |  | 31,220,405 |  | $                     | 0.35
|Issued                            |  | 843,750    |  |                       | 0.40
|Exercised                         |  |           |  |                       |    
|Cancelled                         |  |           |  |                       |    
|Outstanding at March 31, 2009     |  | 32,064,155 |  |                       | 0.35
|                                  |  |           
|Exercisable at March 31, 2009     |  | 30,864,155 |  | $                     | 0.31



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BIOVEST INTERNATIONAL, INC AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



14. Segment information:

The Company operates in three identifiable industry segments. The Companys cell culture products and services segment is engaged
in the production and contract manufacturing of biologic drugs and cell production for research institutions worldwide. The instruments and disposables segment is engaged in the development, manufacture and marketing of patented cell culture
systems, equipment and consumable parts to pharmaceutical, diagnostic and biotechnology companies, as well as leading research institutions worldwide. The therapeutic vaccine segment, 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 among the identifiable segments. Revenue and cost of sales information
about the Companys segments are as follows:



|                            |  |                              |         |   |                            |   |           |      |  |   |           |   |  |   |           |  
|--------------------------- |  | ---------------------------- | ------- | - | -------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                            |  | Three Months ended March 31, |         |   | Six Months ended March 31, |  
|                            |  | 2009                         |         |   | 2008                       |   |           | 2009 |  |   | 2008      |  
|Revenues                    |  |                              |         |   |                            |   |           |      |  |   |           |   |  |   |           |  
|Instruments and Disposables |  | $                            | 714,000 |   |                            | $ | 821,000   |      |  | $ | 1,105,000 |   |  | $ | 1,578,000 |  
|Cell Culture Services       |  |                              | 272,000 |   |                            |   | 735,000   |      |  |   | 539,000   |   |  |   | 1,237,000 |  
|                            |  |                              |         |   |                            |   |           |      |  |   |           |   |  |   |           |  
|Total Revenues              |  |                              | 986,000 |   |                            |   | 1,556,000 |      |  |   | 1,644,000 |   |  |   | 2,815,000 |  
|                            |  |                              |         |  
|Cost of Sales               |  |                              |         |   |                            |   |           |      |  |   |           |   |  |   |           |  
|Instruments and Disposables |  |                              | 428,000 |   |                            |   | 500,000   |      |  |   | 752,000   |   |  |   | 932,000   |  
|Cell Culture Services       |  |                              | 246,000 |   |                            |   | 308,000   |      |  |   | 524,000   |   |  |   | 559,000   |  
|                            |  |                              |         |   |                            |   |           |      |  |   |           |   |  |   |           |  
|Total Cost of Sales         |  |                              | 674,000 |   |                            |   | 808,000   |      |  |   | 1,276,000 |   |  |   | 1,491,000 |  
|                            |  |                              |         |  
|Gross Margin ($)            |  | $                            | 312,000 |   |                            | $ | 748,000   |      |  | $ | 368,000   |   |  | $ | 1,324,000 |  
|Gross Margin (%)            |  |                              | 32      | % |                            |   | 48        | %    |  |   | 22        | % |  |   | 47        | %

15. New Market Tax Credit Transactions:

April 2006 NMTC
Transaction1

On April 25, 2006, the Companys 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). The following parties were involved in Transaction I: Accentia, Biovests majority shareholder, 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, and Laurus. Biovax is a qualified,
active low-income business and is eligible to receive investment capital under the NMTC regulations.





|1 | In July 2010, the Company and certain of its affiliates entered into an agreement (the Worcester Restructuring Agreement) with Telesis CDE
Corporation and Telesis CDE Two, LLC (collectively, Telesis), contingent upon submission to and approval by the Bankruptcy Court. The Worcester Restructuring Agreement effectively terminates all agreements and obligations of all parties
pursuant to Transaction I, in consideration of retention by Telesis of an unsecured claim in the Companys Chapter 11 proceeding in the amount of $0.3 million along with a settlement payment in the amount of $85,000 to defray certain legal and
administrative expenses incurred by Telesis. Upon approval by the Bankruptcy Court, the Companys Guaranty, the Guaranty by the Companys parent, Accentia, and all of the Companys subsidiary Guaranties from affiliates and third
parties and all other obligations to all parties to Transaction I will be terminated.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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BIOVEST INTERNATIONAL, INC AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



On March 31, 2006, in contemplation of Transaction I, the Company closed a financing transaction
with Laurus pursuant to which Laurus purchased from Biovest a secured promissory note in the principal amount of $7.799 million (the Laurus Note). Accentia originally guaranteed 64% of any amounts outstanding under the note. On
May 30, 2008, this guaranty was modified to reflect a fixed principal amount of $5.0 million. Under the terms of the Laurus Note, $7.5 million of the principal amount was deposited into a restricted bank account of Biovest pursuant to a
restricted account agreement between Biovest and Laurus. Accentia, Analytica International, 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 Biolender, which was added as obligor by way of joinder, to secure the obligations owed to Laurus as a result of the Laurus Note.

In contemplation of Transaction I, Biovest and Accentia formed Biolender as a Delaware limited liability company. On April 21, 2006,
$2.5 million was released from the restricted account created under the Laurus Note. The release of these funds was contingent upon their use in Transaction I. 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. The $6.0 million loan from First Bank was fully guaranteed by two directors of Accentia. 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.

In contemplation of Transaction I, Biovax Investment, LLC (the Fund) was established. U.S. Bancorp invested $3.6 million for a 99.99% 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, 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 ($12.0 million) as well as make payments for associated management, legal and accounting fees ($0.1 million). The $12.0 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.

The CDE is a Community Development Entity that is certified through the U.S. Treasury Department to make 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 Telesis. The CDE, 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 the CDE 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 the CDE 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 were reflected as an equity financing cost in stockholders
equity at a fair value of $0.517 million 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.

Biovax used the proceeds of the $11.5 million convertible promissory note as follows: $6.0 million was paid to
Biovest pursuant to an Asset Purchase and Sale Agreement dated April 18, 2006 and as described further below, $1.6 million was issued as a dividend to Biovest and $1.3 million was paid to Biovest for BiovaxID anti-cancer vaccines in various
stages of production. The remaining $2.6 million was used to cover ongoing operational expenses.

The transaction was structured so that, upon
maturity, Biovax will have paid approximately $12.4million in principal and interest payments to the CDE. The operating agreement of the CDE stipulates that in the event the QLICI is repaid in the



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



combination of stock and cash, the stock received shall be distributed to the Fund. Furthermore, any distributable cash received by Telesis CDE II, LLC shall be distributed to the Fund in
proportion to the Funds respective percentage interest in the CDE in an amount sufficient to fully pay the Funds note payable to Biolender. Upon maturity, the Fund will have paid approximately $11.9 million in principal and interest
payments to Biolender. At maturity, total equity of the Fund is approximated to be $0.1 million resulting from the difference of $12.4 million in principal and interest payments received less $11.9 million in principal and interest paid less
approximately $0.4 million in estimated operating costs of the Fund over the 7.5 year term of the notes. Biolender 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 $0.18 million. Management has concluded that the fair value of US Bancorps investment in the Fund at maturity of both notes (approximately $0.1 million) would be less than the $0.18 million US
Bancorp would receive upon exercise of the put option and thus it is managements expectation that this option will be exercised. Thus, prior to maturity of both notes, it is anticipated that the Fund will be 99.99% owned by Biolender. The
Company accounted for this option as a derivative liability that requires recognition at fair value. The Company utilized a probability-based, discounted cash flow approach to value the put. Accordingly, the valuation technique provided for the
recognition of the full put amount ($0.18 million) at the present value of its cash flows, using market interest rates that would likely be considered by market participants trading similar instruments.

Salient terms and conditions of Transaction I are as follows:



| |  |  | Under an Asset Purchase and Sale Agreement dated as of April 18, 2006 (the Asset Purchase Agreement), 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. In addition, Biovax advanced rental payments for the Leasehold in the amount of $4.5 million. Under the Asset Purchase Agreement, Biovest is required to treat the advance as unrestricted and non-segregated funds provided that
Biovest uses the funds to make all required lease payments. Finally, Biovax also hired all of Biovests employees 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 the transaction were fully assigned to US Bancorp. Biovax entered into an indemnification agreement directly with US
Bancorp that provides for indemnification in the event of tax credit recapture from events caused by Biovax. Biovax 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 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 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 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 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 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
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| | 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 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 Agreement between Biovax and the Company, 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 control of Biovax. Therefore, this potential liability is not reflected in the
consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company, Accentia and certain directors of the Company and Accentia entered into a guarantee arrangement with the CDE for the debt service of
Biovax. The Company has guaranteed 100% of the debt service while the directors of the Company and Accentia have guaranteed up to $6.0 million of the debt service. 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 officers and directors as compensation for their guarantees. The guarantees were
treated in a manner similar to contributed service and their fair value of $0.46 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 $0.108 million paid directly by Biovax and involved in structuring this transaction were recorded as a reduction
to additional paid-in capital. Various legal and accounting fees of $0.17 million paid by entities in which the Company has a variable interest and involved in structuring this transaction (the Fund and the CDE) were recorded as a reduction to
non-controlling interests in variable interest entities on the Companys consolidated balance sheet. Professional fees of $0.36 million involved in the continuing management of this transaction were recorded as a prepaid expense 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of the Companys Chapter 11 filing on November 10, 2008, Biovax, Inc. discontinued interest payments due on its QLICI promissory
note.



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December 2006 NMTC
Transaction2

On December 8, 2006, the Companys wholly owned subsidiary,
AutovaxID, Inc. (AutovaxID) closed a second NMTC 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 (CDE II), St. Louis Development Corp., AutovaxID Investment LLC (Fund II), U.S. Bancorp, and Laurus.

On December 8, 2006, Accentia loaned to the Company $3.1 million pursuant to a Secured Promissory Note (the Accentia Note). Under the
terms of the Accentia Note, interest accrues at a rate equal to prime rate, and is convertible, at Accentias option, to shares of the Companys common stock at a conversion price of $0.32 per share. Upon closing of Transaction II, the
Company repaid Accentia $1.1 million. The remaining $2.0 million of principal and all accrued and unpaid interest is included in notes payable, related parties in the accompanying September 30, 2008 consolidated balance sheet, and is due upon
30 days advance written notice by Accentia.

In contemplation of Transaction II, Biovest formed Biolender II as a Delaware limited liability
company. On December 8, 2006, $2.5 million was released from the restricted account created under the Laurus Note. The release of these funds was contingent upon their use in Transaction II. These funds, 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 the Company. The Companys entire equity interest of $5.6 million in Biolender II has been pledged to Laurus as collateral to
secure the Laurus Note.

In contemplation of Transaction II, Fund II was established. U.S. Bancorp invested $2.4 million for a 100% equity
interest in Fund II. Additionally, Biolender II and Fund II entered into a Loan and Security Agreement pursuant to which Biolender II made a loan to Fund II in the principal amount of $5.6 million (the Leverage Loan), evidenced by a
promissory note dated December 8, 2006 payable from Fund II 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 Fund II from U.S. Bancorp and Biolender II were used to make a contemporaneous 99.99% equity investment in CDE II. The $8.0
million investment by Fund II to CDE II 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 Fund IIs interest in CDE II has been pledged to Biolender II as collateral for the Leverage Loan.

CDE II is a Community Development Entity that is certified through the U.S. Treasury Department to make 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 CDE II. CDE II, 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 which matures on December 8, 2036 (the CDE II Loan). 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 II Loan in the amount of $5.7 million, in full satisfaction of the principal on the CDE II Loan. Interest on the outstanding principal amount of the
CDE II Loan accrues at the rate of 5.82% per annum, non-compounding and is payable in arrears on an annual basis having commenced on January 2, 2007 and continuing until maturity. The CDE II Loan is guaranteed in full by the Company and is
also guaranteed up to an amount of $4.5 million by officers and directors of Accentia. The Company issued warrants to purchase 2.6 million shares of common stock to these officers and directors 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





|2 | In July 2010, the Company and certain of its affiliates entered into an agreement (the St. Louis Restructuring Agreement) with St. Louis
Development Corporation and Saint Louis New Markets Tax Credit Fund II, LLC (collectively SLDC), contingent upon submission to and approval by the Bankruptcy Court. The St. Louis Restructuring Agreement effectively terminates all
agreements and obligations of all parties pursuant to Transaction II, in consideration of retention by SLDC of an unsecured claim in the Companys Chapter 11 proceeding in the amount of $160,000 along with a settlement payment in the amount of
$62,000 to defray certain legal and administrative expenses incurred by SLDC. Upon approval by the Bankruptcy Court, its Guaranty, the Guaranty by its parent, Accentia, and all of its subsidiary Guaranties from affiliates and third parties and all
other obligations to all parties to Transaction II will be terminated.
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kind to the extent that the guarantors are called upon to pledge funds, assets or collateral in connection with the guarantee being executed.

AutovaxID used the proceeds from the $7.7 million promissory note to pay the Company $6.1 million pursuant to an Asset Purchase and License Agreement
dated December 8, 2006 and described further below. The remaining $1.6 million was used to cover ongoing operational expenses of AutovaxID.

The transaction was structured so that, on June 9, 2014, AutovaxID will have paid approximately $9.1 million in principal and interest payments to
CDE II. The operating agreement of CDE II stipulates that any distributable cash received shall be distributed to Fund II in proportion to the respective percentage interest Fund II has in CDE II in an amount sufficient to fully pay the Fund II note
payable to Biolender II. On June 9, 2014, Fund II will have paid approximately $9.0 million in principal and interest payments to Biolender II (assuming CDE II exercises its right to call the CDE II loan for $5.7 million on June 9, 2014).
At maturity then, total equity of the Fund is approximated to be $0.1 million, resulting from the difference of $9.1 million in principal and interest payments received less $9.0 million in principal and interest paid over the 7.5 year term of the
notes.

Biolender II and US Bancorp entered into a put option wherein US Bancorp will have the right to put its investment in Fund II to the
Company near the maturity of the instruments at a price of $0.12 million. Management has concluded that the fair value of US Bancorps investment in Fund II at maturity of both notes (approximately $0.1 million) would be less than the $0.12
million US Bancorp would receive upon exercise of the put option and thus it is managements expectation that this option will be exercised. Thus, prior to maturity of both notes, it is anticipated that the Fund will be 100% owned by Biolender
II. The Company accounted for this option as a derivative liability that requires recognition at fair value. The Company utilized a probability-based, discounted cash flow approach to value the put. Accordingly, the valuation technique provided for
the recognition of the full put amount ($0.12 million) at the present value of its cash flows, using market interest rates that would likely be considered by market participants trading similar instruments.

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



| |  |  | AutovaxID does not have the right to prepay the CDE II Loan prior to June 8, 2014. AutovaxID does have the right to prepay the CDE II Loan after
this date, provided that (i) it prepays the entire CDE II Loan amount, (ii) the CDE II consents to such prepayment and US Bancorp 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 certain individuals who provided guaranties under the Tax Credit and Reimbursement and Indemnity Agreement pay to US Bancorp the recapture amount so specified is such agreement.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All indebtedness owed by AutovaxID and its subsidiaries to CDE II, including its right to receive payments of principal and interest under the CDE II
Loan, is expressly subordinate to the extent set forth under the Telesis Subordination Agreement dated as of December 8, 2006 entered into by Laurus, CDE II, US Bancorp, AutovaxID and the Company.
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| |  |  | The tax credits arising from this transaction were fully assigned to US Bancorp. AutovaxID has entered into an indemnification agreement directly with
US Bancorp that provides for indemnification in the event of tax credit recapture from events caused by AutovaxID. AutovaxID 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 of the use of the tangible property of 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 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 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 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 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 CDE II; and (xv) AutovaxID and Biovest will operate consistently with the License between AutovaxID and Biovest, and will not amend such agreement without prior written consent of CDE
II. 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 AutovaxIDs control. Therefore, this potential liability is not reflected in the consolidated financial statements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under a Reimbursement Agreement dated as of December 8, 2006, Biovest agreed to reimburse St. Louis Development Corp (the 0.01% owner and managing
member of CDE II) up to $32,000 annually for expenses incurred by St. Louis Development Corp in connection with its management of CDE II.
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THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



| |  |  | Various legal, accounting, and professional fees of $433,000 paid directly by the Company and AutovaxID and involved in structuring this transaction
were recorded as a reduction to additional paid-in capital. Various legal and accounting fees of $180,000 paid by entities in which the Company has a variable interest (CDE II and Fund II) and involved in structuring this transaction were recorded
as a reduction to non-controlling interests in variable interest entities on the Companys consolidated balance sheet. Professional fees of $115,000 involved in the continuing management of this transaction were recorded as a prepaid expense
and will be amortized over a period of seven and one half years, representing the duration of the note issued by Fund II and payable to Biolender II.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As a result of the Companys Chapter 11 filing on November 10, 2008, AutovaxID, Inc. discontinued interest payments due on its QLICI promissory
note.

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.



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The Company concluded that Biolender, Biovax Investment, LLC, Telesis CDE Two, LLC, Biolender II,
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 guidance, 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 Biolender, LLC |  | Variable Interests BiovaxInvestment,
LLC |  | Variable Interests Telesis CDE Two,LLC
|Biovest and its Related Parties |  | Controlling interest              |  | Senior beneficial interest               |  | Senior beneficial interest            
|                                |  | Primary beneficiary               |  | Guaranty agreement                       |  | Guarantee agreement                   
|                                |  |                                   |  | Indemnification agreement                |  |                                       
|                                |  |                                   |  | Put (VIE Equity)                         |  |                                       
|                                |  |                                   |  | Call (VIE Equity)                        |  |                                       
|                                |  |                                   | 
|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 Interest Biolender II, LLC |  | Variable Interests AutovaxIDInvestment,
LLC |  | Variable Interests St. Louis NMTCFund II, LLC
|Biovest and its Related Parties   |  | Controlling interest                |  | Senior beneficial interest                  |  | Senior beneficial interest                   
|                                  |  | Primary beneficiary                 |  | Guaranty Agreement                          |  | Guarantee Agreement                          
|                                  |  |                                     |  | Indemnification Agreement                   |  |                                              
|                                  |  |                                     |  | Put (VIE Equity)                            |  |                                              
|                                  |  |                                     |  | Call (VIE Equity)                           |  |                                              
|                                  |  |                                     | 
|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 concluded that its variable interests in the entity absorb most of the variable interest entities losses and
should, therefore, consolidate the entities under the scope of FIN46.

Assets of $20.6 million and liabilities of $16.4 million of the
variable interest entities identified above, are limited to the instruments pertaining to the NMTC financing arrangements. In accordance with consolidation principles, these assets and liabilities are eliminated in consolidation leaving the
non-controlling interests of Biolender, Telesis CDE Two, LLC, Biovax Investment, LLC, Biolender II, AutovaxID Investment, LLC, and St. Louis NMTC Fund II, LLC, reflected on the Companys March 31, 2009 consolidated balance sheet as
non-controlling interests in variable interest entities.



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The Companys $196,000 non-controlling interest in (income)/losses from variable interest entities
on it consolidated statement of operations for the six months ended March 31, 2009 consists of the following:



|                            |  |   |          |  
|--------------------------- |  | - | -------- | -
|Variable Interest Entity    |  |   |         
|Biovax Investment LLC       |  | $ | 223,000  |  
|Telesis CDE Two, LLC        |  |   | (34,000  | )
|AutovaxID Investment, LLC   |  |   | 223,000  |  
|St. Louis NMTC Fund II, LLC |  |   | (216,000 | )
|                            |  |   |          |  
|                            |  | $ | 196,000  |  
|                            |  |   |          |  

17. Commitments and contingencies:

Legal proceedings:

On November 10,
2008, the Company filed a voluntary petition for reorganization under Chapter 11 in the Bankruptcy Court. During the pendency of the Chapter 11 proceedings, the Company will operate its business as a debtor-in-possession in accordance with the
provisions of Chapter 11, and will be subject to the jurisdiction of the Bankruptcy Court.

On August 4, 2008, the Company was served
with a summons and complaint filed in California Superior Court on behalf of Clinstar LLC for breach of contract for non-payment of certain fees for clinical trial studies and pass-through expenses in the amount of $385,000. The Company intends to
seek to dismiss this litigation and plans to defend these claims vigorously. Upon the filing of the Companys Chapter 11 petition on November 10, 2008, this litigation was automatically stayed pursuant to provisions of federal bankruptcy
law.

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

Further, from time to time we are
subject to various legal proceedings in the normal course of business, some of which are covered by insurance.

Facility leases:

The Company leases approximately 35,000 square feet in Minneapolis, Minnesota, which it uses for offices, a laboratory, manufacturing,
warehousing areas to support the production of perfusion cell culture equipment, and contract cell culture services. This facility lease agreement has expired and the Company continues to occupy this facility on a month-to-month basis with a
long-term lease currently being negotiated which is expected to include improvements to the facility to provide a dedicated laboratory space for production of BiovaxID and potential future expansion to the facility to permit additional BiovaxID
production capacity when required.

On December 8, 2008, the Bankruptcy Court entered an Order confirming the
rejection of the Companys Worcester lease, and it no longer occupies the 17,000 square feet in Worcester, Massachusetts, which it used for
BiovaxID® production, contract cell production, offices, and storage.

On December 1, 2008, the Company amended its 24,000 square feet lease in St. Louis, Missouri, which shortened the lease term to November 30,
2009 and decreased the leased premises to 10,000 square feet. On March 31, 2009, pursuant to the terms of the amended lease, the Company terminated the lease.



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THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



Cooperative Research and Development Agreement:

In September 2001, the Company entered into a definitive Cooperative Research and Development Agreement (CRADA) with the NCI for the
development and ultimate commercialization of patient-specific vaccines for the treatment of non-Hodgkins low-grade follicular lymphoma. The terms of the CRADA, as amended, included, among other things, a requirement to pay $0.5 million
quarterly to NCI for expenses incurred in connection with the ongoing Phase 3 clinical trials. Since the transfer to Biovest of the investigational new drug application for development of this vaccine, which occurred in April 2004, these payments to
NCI have been reduced to a small fraction of this original obligation (approximately $0.2 million per year). On September 25, 2006, the Company provided written notice to the NCI in accordance with the terms of the CRADA to terminate the
CRADA at the end of the sixty day notice period. Under the terms of the CRADA, the Company is obligated to continue to provide vaccine to the NCI at no charge for purposes of the NCIs studies that are within the scope of the CRADA if the
Company were to abandon work on the vaccine. As the Company is actively developing the vaccine for commercialization and intends to do so to its completion, no estimated costs have been accrued as of March 31, 2009.

Guarantee Indemnifications:

Under the
terms of the Pulaski Bank and Southwest Bank notes, several board members, executives and other affiliates issued personal guarantees. The Company agreed to indemnify and hold harmless each guarantor should their guarantees be called by the Pulaski
Bank and Southwest Bank 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. On
December 29, 2008, Pulaski Bank called its guaranty resulting in an aggregate payment of $1.0 million by the guarantors. As a result of their indemnification agreements, the Pulaski Bank guarantors are expected to assert an unsecured claim
for the value of approximately 6.4 million shares of the Companys common stock which are recorded as having a fair value of $0.8 million as of March 31, 2009. In January 2009, Southwest Bank called its guaranty resulting in an
aggregate payment of $0.2 million by the guarantor. As a result of this indemnification agreement, the Southwest Bank guarantor is expected to assert an unsecured claim for the value of approximately 1.3 million shares of the Companys
common stock, which are recorded as having a fair value of $0.2 million as of March 31, 2009.

Food and Drug Administration:

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

Product liability:

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



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BIOVEST INTERNATIONAL, INC AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



Royalty agreements:

Pursuant to the royalty agreement dated October 31, 2006, as amended, the Company is required to pay to Accentia a 15.5% royalty on net sales from
biologics products.

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. 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 having been paid on
December 10, 2007 and the balance (if any), less actual royalties paid, being due on May 31, 2012.

On October 30, 2007,
December 10, 2007, and again on May 30, 2008 the Company completed and/or modified financing transactions with the Valens Funds, both of which are subsidiary companies of Laurus. Pursuant to these transactions, the Valens Funds were
granted an aggregate 19.5% royalty interest in the worldwide net commercial sales of the Companys biologic products.

Stanford
University agreement

In September 2004, the Company entered into an agreement with Stanford University (Stanford) allowing
worldwide rights to use two proprietary hybridoma cell lines that are used in the production of BiovaxID. Under the agreement with Stanford, the Company is obligated to pay a yearly maintenance fee of $10,000 per year. The agreement also provides
that the Company will pay Stanford $0.1 million within one year following FDA approval of BiovaxID or five years following the agreement date (whichever occurs first), and following approval the Company is required to pay Stanford a running royalty
of the higher of $50.00 per patient or 0.05% of revenues received by the Company for each BiovaxID patient treated using this cell line. This running royalty will be creditable against the yearly maintenance fee. Our agreement with Stanford
obligates us to diligently develop, manufacture, market, and sell BiovaxID and to provide progress reports to Stanford regarding these activities. We can terminate this agreement at any time upon 30 days prior written notice, and Stanford can
terminate the agreement upon a breach of the agreement by us that remains uncured for 30 days after written notice of the breach from Stanford.

Distribution agreement

On June 1,
2007, the Company entered into a non-exclusive distribution agreement with VWR, to distribute the AutovaxID automated cell culture device in North America. Under the terms of this agreement, the Company is obligated to pay to VWR 25% of net sales
revenue generated from the sales and marketing efforts of VWR on AutovaxID cell culture systems and disposable cultureware used in conjunction with the AutovaxID system. The initial term of this agreement is for 24 months and can be terminated at
any time by either party upon 180 days prior written notice. Subsequent to the period of this report, effective as of March 21, 2010, the Company terminated the non-exclusive distribution agreement.

Sublicense agreement with related party

On January 16, 2008, the Company entered into a sublicense agreement (the Sublicense Agreement) with Revimmune, LLC
(Revimmune) under which the Company was granted the exclusive worldwide rights to Revimmune, a patent-pending pharmaceutical treatment in late-stage development for the treatment of and prevention of transplant rejection including
rejection following a bone marrow transplant.

Other material terms and conditions of the Sublicense Agreement are as follows:



| |  |  | The Company is obligated to pay to Revimmune a royalty of 6% on net sales, and in the event of a sublicense by the Company, to pay 20% of sublicense
consideration received. The Company did not pay an upfront fee in connection with the Sublicense but upon the approval of the sublicensed treatment in the U.S. for each sublicensed indication, the Company is required to issue to Revimmune vested
warrants to purchase 2.0 million shares of the Companys common stock. Each such warrant which will be granted at the approval of each successive Sublicensed Product will have an exercise price of $1.10 per share or, at the discretion of
Company, at a price equal to the fair market value of the Companys common stock on the date of the grant of such warrant.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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BIOVEST INTERNATIONAL, INC AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



| |  |  | The Company assumed certain obligations under Revimmunes license with Johns Hopkins University related to the sublicensed technology, including
the payment of all royalty obligations due Johns Hopkins University for the sublicensed products which includes a 4% royalty on licensed products and services and a 20% royalty on sublicense consideration.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company will be responsible, at its sole cost and expense, for the development, clinical trial(s), promotion, marketing, sales and
commercialization of the sublicensed products.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In the event of any petition in bankruptcy filed by or with respect to the Company, or any pledge or grant of a lien by the Company of the sublicensed
rights, the Sublicense Agreement shall terminate and the Sublicensed Rights shall revert to Revimmune.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revimmune is affiliated with a director of the Company.
| | - |  | -------------------------------------------------------

18. Subsequent Events:

Department of
Defense Contract:

On September 10, 2009, the Company entered into a $1.5 million contract with the U.S. Department of Defense
Naval Health Research Center (NHRC) to supply AutovaxID bioreactors to evaluate the instruments suitability to produce cell-culture based anti-viral vaccines. Active research is currently ongoing to establish the instruments
adaptability and efficiency for propagation of avian and swine influenza viral strains. Under NHRC studies conducted in San Diego, preliminary results are showing the AutovaxID to be a valuable technology for production of these and other
agents of military importance. Biovests perfusion-based bioreactor systems feature a number of key advantages over other systems, the key of these being their ability to allow for extremely high cell densities and productive cell manufacturing
in systems requiring as little as 4 sq. ft. of facility space. This ability is expected to allow the production of large quantities of viral agents in BL-3 facilities using automated, self-contained bioreactors. The systems provide a
high-throughput, space-efficient system for NHRC investigators to safely evaluate therapies for highly hazardous agents in secure environments. AutovaxID instruments are a highly adaptable platform for research, diagnostic and personalized cGMP
products, and the Company is pursuing additional defense-related contracts to potentially utilize this technology.

Grant of Orphan Drug Designation for
BiovaxID®:

On October 28, 2009, the FDA granted Orphan Drug designation to
BiovaxID®. With FDA Orphan Drug designation, the Company has a seven-year period of market exclusivity for
BiovaxID upon approval, thereby offering competitive protection from similar drugs of the same class. Orphan Drug designation also provides the Company with eligibility to receive potential tax credit benefits, potential grant funding for research
and development and significantly reduced filing fees for marketing applications.

Termination of Distribution Agreement:

Effective March 21, 2010, the Company terminated its non-exclusive distribution agreement with VWR for the sale of AutovaxID instruments.

Appointment of Certain Directors:

On
June 23, 2010, Edmund C. King, CPA was appointed to the Board to serve as a Director to fill the vacancy occasioned by the resignation of Robert Weiss, the Companys designated Financial Expert/Director in November 2008. Mr. King
began to serve as a Director on June 23, 2010 and shall continue to serve as a Director for the remainder of the term of that Director position and until his successor is duly elected and qualified. The Board has determined that Mr. King
is to serve as the designated Financial Expert of the Board and meets the applicable requirements of independence so as to allow the Company to comply, as and when necessary, with the requirements of the Sarbanes-Oxley Act.



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BIOVEST INTERNATIONAL, INC AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008



NMTC I and II Compromises:

In July 2010, the Company and certain affiliates entered into an agreement (the Worcester Restructuring Agreement) with Telesis CDE
Corporation and Telesis CDE Two, LLC (collectively, Telesis), contingent upon submission to and approval by the Bankruptcy Court. The Worcester Restructuring Agreement effectively terminates all agreements and obligations of all parties
pursuant to Transaction I, (see Item 15 for further discussion of this transaction) in consideration of retention by Telesis of an unsecured claim in the Companys Chapter 11 proceeding in the amount of $0.3 million along with a settlement
payment in the amount of $85,000 to defray certain legal and administrative expenses incurred by Telesis. Upon approval by the Bankruptcy Court, the Guaranty of the Company, the Guaranty by the Companys parent, Accentia, and all subsidiary
Guaranties from affiliates and third parties and all other obligations of the Company to all parties to Transaction I will be terminated.

In
July 2010, the Company and certain affiliates entered into an agreement (the St. Louis Restructuring Agreement) with St. Louis Development Corporation and Saint Louis New Markets Tax Credit Fund II, LLC (collectively,
SLDC), contingent upon submission to and approval by the Bankruptcy Court. The St. Louis Restructuring Agreement effectively terminates all agreements and obligations of all parties pursuant to Transaction II, (see Item 15 for further
discussion of this transaction) in consideration of retention by SLDC of an unsecured claim in the Companys Chapter 11 proceeding in the amount of $160,000 along with a settlement payment in the amount of $62,000 to defray certain legal and
administrative expenses incurred by SLDC. Upon approval by the Bankruptcy Court, the Guaranty of the Company, the Guaranty by the Companys parent, Accentia, and all subsidiary Guaranties from affiliates and third parties and all other
obligations of the Company to all parties to Transaction II will be terminated.

Filing of Plan of Reorganization

On May 14, 2010, the Company filed its Joint Plan of Reorganization (the Plan) and on July 2, 2010, the Company filed its Disclosure
Statement with the Bankruptcy Court. The Bankruptcy Court will schedule a hearing on the Disclosure Statement, anticipated to take place in early August 2010.



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

Overview

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

Three clinical trials conducted under our Investigational New Drug Application (IND) have studied
BiovaxID in non-Hodgkins lymphoma. These studies include a Phase 2 clinical trial and a Phase 3 clinical trial in patients with FL, as well as a Phase 2 clinical trial in MCL patients. We believe that these clinical trials have demonstrated
that BiovaxID, which is personalized and autologous (derived from a patients own tumor cells), has an excellent safety profile and is effective in the treatment of these lethal diseases. We are currently preparing for discussions with the U.S.
Food and Drug Administration (FDA) and international agencies regarding regulatory approvals of BiovaxID for FL and MCL based on these clinical trials. We expect that BiovaxID may also have application in other forms of B-cell lymphoma.

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

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

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

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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On November 10, 2008, we, including our wholly-owned subsidiaries, Biovax, AutovaxID, Biolender and
Biolender II filed voluntary petitions for relief under Chapter 11, in the Bankruptcy Court (as defined in Note 2 to the condensed consolidated financial statements). We will continue to operate our business as debtors-in-possession
under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

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

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

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

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

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

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

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

We account 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.



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

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

Results of Operations

Revenues. Total revenues for the six months ended March 31, 2009 were $1.6 million, compared to revenues of $2.8 million for the
six months ended March 31, 2008. Sales from our instrumentation segment experienced a decrease of $473,000 year over year, due mainly to a decrease in unit sales of our disposable units used in our hollow fiber production instrumentation.
Service revenue decreased $698,000 compared to the same period in the previous fiscal year due to three significant cell culture contracts that were ongoing in fiscal 2008. These projects were run to completion prior to the start of fiscal 2009.

Gross Margin. The overall gross margin as a percentage of sales for the six months ended March 31, 2009 decreased
from 47% to 22% when compared to the same period in fiscal 2008. The large decrease in margin results from unabsorbed overhead in both our cell culture and instrumentation segments. While revenues were down in both these segments, as discussed
above, there was not a corresponding decrease in cost of sales as a relatively high percentage of costs are of a fixed nature.

Operating Expenses. Research and development expenses decreased by $1.5 million or 70% for the six months ended March 31, 2009
compared to the same period in fiscal 2008. As we are conducting a detailed analysis of the available trial data and plan to seek accelerated and/or conditional approval with the FDA and EMEA as discussed herein, coupled with the limited financing
available to us, we focused on reducing our R&D expenses from that of historical levels. This has resulted in both R&D staffing levels as well as the number of sites participating in our clinical trials to have declined considerably.
Furthermore, through our voluntary petition for reorganization, we were able to reject the operating lease on our research and development facility in Worcester, Massachusetts on December 8, 2008.

General and administrative expenses decreased $897,000 or 36% over the prior two six month periods, primarily due to a decrease in stock compensation
expense of approximately $400,000.

Other Income (Expense). Other expense for the six months ended March 31, 2009, includes
contractual interest charges and amortization of discounts regarding the Laurus and the Valens Funds financings, interest on our debtor-in-possession loan from Corps Real, interest on our demand notes to Accentia, interest on our unsecured
promissory notes to Pulaski Bank and Southwest Bank, interest on other long-term debt, and short-term loans from affiliates. Total interest expense for the six months ended March 31, 2009 and 2008 was relatively unchanged at $3.0 million for
both periods. We have accrued interest on all our outstanding obligations at the default rate while in Chapter 11. These terms are subject to compromise through our plan of reorganization.



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Other expense for the previous fiscal year includes a $1.8 million loss incurred upon extinguishment of debt
as the result of our modification of certain provisions of our notes payable to Laurus and Pulaski Bank. In addition, other expense for the first six months of fiscal 2009 and 2008 includes a $641,000 gain and a $552,000 loss on derivative
liabilities, respectively. The current year gain results from outstanding warrants and conversion features associated with our secured convertible debentures issued in September, 2008. The fair value of these liabilities, vary directly with the
trading price of our common stock. The trading price of our common shares decreased for the six months ending March 31, 2009 due, in part, to our filing for Chapter 11 in November, 2008, resulting in a corresponding decrease in the value of
these liabilities. The prior years loss was attributable to a default put feature on our notes payable to Laurus and the Valens Funds whereby, upon declaration of default, we would be required to make additional payments over and above the
outstanding principal and interest due on the note. Management concluded that this feature constitutes a derivative liability and utilized a probability-based, discounted cash flow approach to record the put at fair value as of March 31, 2008.
As a result of modifications to our loan agreements with Laurus and the Valens Funds in July, 2008, this liability is no longer reflected in our financial statements as of March 31, 2009.

Reorganization Items.

Professional Fees:Included in the current fiscal years results are expenses of $217,000 for legal fees incurred as a result of our Chapter
11 proceedings.

Provision for rejected lease: In an effort to decrease operating expenses, we rejected our lease in Worcester,
Massachusetts on December 8, 2008 through our reorganization proceedings. We have recorded a net provision of $0.6 million to allow for damages resulting from the rejection of this unexpired lease, which are treated by the bankruptcy code as
general unsecured claims and are limited to either 15 percent of the balance of the rent reserved in the lease or the rent reserved for one year from the filing date or the date the premises were surrendered, whichever is earlier.

Provision for indemnity agreements: The notes we issued to Pulaski Bank and Southwest Bank are guaranteed by individuals affiliated with us, or
our parent company, Accentia. We agreed to indemnify and hold harmless each guarantor should their guarantees be called by the lenders. In addition, in the event we default, resulting in a payment to the lenders by the guarantors, we agreed to
compensate each affected guarantor by issuance of that number of shares of our restricted common stock determined by dividing 700% of the amount guaranteed by $1.10. On December 29, 2008, Pulaski Bank called the guarantees resulting in an
aggregate payment of $1.0 million by the guarantors. In January 2009, Southwest Bank called its guarantee resulting in an aggregate payment of $0.2 million by the guarantor. As a result of their indemnification agreements, the guarantors are
expected to assert an unsecured claim for the value of approximately 7.6 million shares of our common stock, which are recorded as having a fair value of $916,000 as of March 31, 2009.

Non-Controlling interest in earnings from variable interest entities. Our statement of operations also includes a $196,000
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 transactions discussed below.

Liquidity and Capital Resources

We have historically had significant losses from operations and these losses continued during the six months ended March 31, 2009
resulting in a net operating cash flow deficit of $1.3 million. At March 31, 2009, we had an accumulated deficit of approximately $123 million and a working capital deficit of approximately $46 million including those liabilities subject to
compromise through our Chapter 11 proceedings. We intend to attempt to meet our cash requirements through proceeds from our cell culture and instrument manufacturing activities, the use of cash on hand, trade-vendor credit, restructure of our
outstanding debt obligations through the Chapter 11 reorganization proceedings, and short-term borrowings as well as through the restructuring and reorganization of our debt and other obligations through the ongoing Chapter 11 process. Our ability
to continue present operations, pay our liabilities as they become due, and meet our obligations for vaccine development is dependent upon our ability to formulate and submit to the Bankruptcy Court an acceptable Plan of Reorganization, and will
likely require us to obtain significant external funding, which raises substantial doubt about our ability to continue as a going concern. The need for funds is expected to grow as we continue our efforts to commercialize both
BiovaxID® and AutovaxID.



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

New Market Tax Credit Transactions:

April 2006 NMTC
Transaction3:

On April 25, 2006, our 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). The following parties were involved in Transaction I: Accentia, our majority shareholder, 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, and Laurus. Biovax is a qualified, active low-income business and is
eligible to receive investment capital under the NMTC regulations.

On March 31, 2006, in contemplation of Transaction I, we closed a
financing transaction with Laurus pursuant to which Laurus purchased from us a secured promissory note in the principal amount of $7.799 million (the Laurus Note). Accentia originally guaranteed 64% of any amounts outstanding under the
note. On May 30, 2008, this guaranty was modified to reflect a fixed principal amount of $5.0 million. Under the terms of the Laurus Note, $7.5 million of the principal amount was deposited into our restricted bank account (the Restricted
Account) pursuant to a restricted account agreement between ourselves and Laurus. Accentia, Analytica International, Inc. and Laurus also entered into an Amended and Restated Stock Pledge Agreement pledging Accentias shares of TEAMM
Pharmaceuticals, Inc.and Analytica International, Inc., as well as the Companys and Accentias membership interest in Biolender, which was added as obligor by way of joinder, to secure the obligations owed to Laurus as a result of the
Laurus Note.

In contemplation of Transaction I, we, formed along with Accentia, Biolender, as a Delaware limited liability company. On
April 21, 2006, $2.5 million was released from the Restricted Account created under the Laurus Note. The release of these funds was contingent upon their use in Transaction I. 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. The $6.0 million loan from First Bank was fully guaranteed by two directors of
Accentia. On April 27, 2006, we redeemed 10 million shares of 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, we entered into a Purchase Agreement with Accentia whereby we purchased Accentias 70.5% ownership interest in Biolender. In consideration of the sale
of this interest in Biolender, we issued to Accentia ten million shares of common stock, representing the negotiated value of the purchased interest.

In contemplation of Transaction I, Biovax Investment, LLC (the Fund) was established. U.S. Bancorp invested $3.6 million for a 99.99% 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%





|3 | In July 2010, we and certain of our affiliates entered into an agreement (the Worcester Restructuring Agreement) with Telesis CDE
Corporation and Telesis CDE Two, LLC (collectively, Telesis), contingent upon submission to and approval by the Bankruptcy Court. The Worcester Restructuring Agreement effectively terminates all agreements and obligations of all parties
pursuant to Transaction I, in consideration of retention by Telesis of an unsecured claim in our Chapter 11 proceeding in the amount of $0.3 million along with a settlement payment in the amount of $85,000 to defray certain legal and administrative
expenses incurred by Telesis. Upon approval by the Bankruptcy Court, our Guaranty, the Guaranty by our parent, Accentia, and all of our subsidiary Guaranties from affiliates and third parties and all other obligations to all parties to Transaction I
will be terminated.
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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 our 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) as well as make 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.

The CDE is a Community Development Entity that is certified through the U.S. Treasury Department to make 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 Telesis. The CDE, 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 Loan). The convertible promissory note is convertible into common stock at the option of the CDE 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 the CDE converts the note payable, the aforementioned note receivable is subject to immediate conversion at the same conversion
price. We also issued to Telesis CDE Corporation warrants to purchase 1.2 million shares of our 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.

Biovax used the proceeds of the $11.5 million convertible promissory note as follows: $6.0 million was paid to Biovest
pursuant to an Asset Purchase and Sale Agreement dated April 18, 2006 and as described further below, $1.6 million was issued as a dividend to Biovest and $1.3 million was paid to Biovest for the BiovaxID anti-cancer vaccines in various stages
of production. The remaining $2.6 million was used to cover ongoing operational expenses.

The transaction was structured so that, upon
maturity, Biovax will have paid approximately $12.4 million in principal and interest payments to the CDE. The operating agreement of the CDE stipulates that in the event the QLICI is repaid in the combination of stock and cash, the stock received
shall be distributed to the Fund. Furthermore, any distributable cash received by Telesis CDE II, LLC shall be distributed to the Fund in proportion to the Funds respective percentage interest in the CDE in an amount sufficient to fully pay
the Funds note payable to Biolender. Upon maturity, the Fund will have paid approximately $11.9 million in principal and interest payments to Biolender. At maturity, total equity of the Fund is approximated to be $0.1 million resulting from
the difference of $12.4 million in principal and interest payments received less $11.9 million in principal and interest paid less approximately $0.4 million in estimated operating costs of the Fund over the 7.5 year term of the notes. Biolender and
US Bancorp entered into a put option wherein US Bancorp will have the right to put its investment in the Fund to us near the maturity of the instruments at a price of $0.18 million. Management has concluded that the fair value of US Bancorps
investment in the Fund at maturity of both notes (approximately $0.1 million) would be less than the $0.18 million US Bancorp would receive upon exercise of the put option and thus it is managements expectation that this option will be
exercised. Thus, prior to maturity of both notes, it is anticipated that the Fund will be 99.99% owned by Biolender. We accounted for this option as a derivative liability that requires recognition at fair value. We utilized a probability-based,
discounted cash flow approach to value the put. Accordingly, the valuation technique provided for the recognition of the full put amount ($0.18 million) at the present value of its cash flows, using market interest rates that would likely be
considered by market participants trading similar instruments.



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Salient terms and conditions of Transaction I are as follows:



| |  |  | Under an Asset Purchase and Sale Agreement dated as of April 18, 2006 (the Asset Purchase Agreement), we transferred all or
substantially all of the assets of our vaccine manufacturing business situated at 377 Plantation Street, Worcester, Massachusetts (the Plant and the assets hereinafter the Equipment) and our 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. In addition, Biovax advanced rental payments for the Leasehold in the amount of $4.5 million. Under the Asset Purchase Agreement, we were required to treat the advance as unrestricted and non-segregated funds provided that
we use the funds to make all required lease payments. Finally, Biovax also hired all of our 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. Biovax entered into an indemnification agreement directly with US
Bancorp that provides for indemnification in the event of tax credit recapture from events caused by Biovax. Biovax 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 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 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 of the average of the
unadjusted bases of the
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| | 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 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 promulgated thereunder (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 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 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) we, along with Biovax will operate consistently with the Asset Purchase Agreement between us and Biovax, 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 control of Biovax. Therefore, this potential liability is not reflected in the consolidated financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We, along with Accentia and certain members of our board of directors and Accentia entered into a guarantee arrangement with the CDE for the debt
service of Biovax. We have guaranteed 100% of the debt service while our directors and Accentias directors have guaranteed up to $6.0 million of the debt service. In addition, Accentia has partially guaranteed debt service with limitations
established at no greater than $60,000 each year the instrument is outstanding. We issued warrants to purchase 1.0 million shares of common stock to the officers and directors 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. We 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 $108,000 paid directly by Biovax and involved in structuring this transaction were recorded as a reduction to
additional paid-in capital. Various legal and accounting fees of $170,000 paid by entities in which we have a variable interest and involved in structuring this transaction (the Fund and the CDE) were recorded as a reduction to non-controlling
interests in variable interest entities on our consolidated balance sheet. Professional fees of $360,000 involved in the continuing management of this transaction were recorded as a prepaid expense 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.
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As a result of our
Chapter 11 filing on November 10, 2008, Biovax discontinued interest payments due on its QLICI promissory note.



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December 2006 NMTC
Transaction4:

On December 8, 2006, our 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 (CDE II), St. Louis Development
Corp., AutovaxID Investment LLC (Fund II), U.S. Bancorp, and Laurus.

On December 8, 2006, Accentia loaned to us $3.1 million
pursuant to a Secured Promissory Note (the Accentia Note). Under the terms of the Accentia Note, interest accrues at a rate equal to prime rate, and is convertible, at Accentias option, into shares of our common stock at a
conversion price of $0.32 per share. Upon closing of Transaction II, we repaid Accentia $1.1 million. The remaining $2.0 million of principal and all accrued and the unpaid interest is included in liabilities subject to compromise in the
accompanying December 31, 2008 consolidated balance sheet as the result of our voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code, filed on November 10, 2008.

In contemplation of Transaction II, we formed Biolender II as a Delaware limited liability company. On December 8, 2006, $2.5 million was released
from the Restricted Account created under the Laurus Note. The release of these funds was contingent upon their use in Transaction II. These funds, together with the amount loaned to us under the Accentia Note funded the purchase of a 100% equity
interest in Biolender II for our benefit. Our entire equity interest of $5.6 million in Biolender II has been pledged to Laurus as collateral to secure the Laurus Note.

In contemplation of Transaction II, Fund II was established. U.S. Bancorp invested $2.4 million for a 100% equity interest in Fund II. Additionally,
Biolender II and Fund II entered into a Loan and Security Agreement pursuant to which Biolender II made a loan to Fund II in the principal amount of $5.6 million (the Leverage Loan), evidenced by a promissory note dated December 8,
2006 payable from Fund II 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 Fund II from U.S. Bancorp and Biolender II were used to make a contemporaneous 99.99% equity investment in CDE II. The $8.0 million investment by Fund II to CDE II 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 Fund IIs interest in CDE II has been
pledged to Biolender II as collateral for the Leverage Loan.

CDE II is a Community Development Entity (CDE) that is certified
through the U.S. Treasury Department to make 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 consideration for
its 0.01% interest in CDE II. CDE II, 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 which matures on
December 8, 2036 (the CDE II Loan). 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 II Loan in the amount of $5.7 million, in
full satisfaction of the principal on the CDE II Loan. Interest on the outstanding principal amount of the CDE II Loan accrues at the rate of 5.82% per annum, non-compounding and is payable in arrears on an annual basis having commenced on
January 2, 2007 and continuing until maturity. The CDE II Loan is guaranteed in full by us and is also guaranteed up to an amount of $4.5 million by officers and directors of Accentia. We issued warrants to purchase 2.6 million shares of
common stock to these officers and directors 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. We 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.

AutovaxID used the proceeds from the $7.7 million promissory note to pay Biovest $6.1 million pursuant to an Asset Purchase and License Agreement dated
December 8, 2006 and described further below. The remaining $1.6 million was used to cover ongoing operational expenses of AutovaxID.





|4 | In July 2010, we and certain of our affiliates entered into an agreement (the St. Louis Restructuring Agreement) with St. Louis Development
Corporation and Saint Louis New Markets Tax Credit Fund II, LLC (collectively SLDC), contingent upon submission to and approval by the Bankruptcy Court. The St. Louis Restructuring Agreement effectively terminates all agreements and
obligations of all parties pursuant to Transaction II, in consideration of retention by SLDC of an unsecured claim in our Chapter 11 proceeding in the amount of $160,000 along with a settlement payment in the amount of $62,000, to defray certain
legal and administrative expenses incurred by SLDC. Upon approval by the Bankruptcy Court, our Guaranty, the Guaranty by our parent, Accentia, and all of our subsidiary Guaranties from affiliates and third parties and all other obligations to all
parties to Transaction II will be terminated.
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Transaction II was structured so that, on June 9, 2014, AutovaxID will have paid approximately $9.1
million in principal and interest payments to CDE II. The operating agreement of CDE II stipulates that any distributable cash received shall be distributed to Fund II in proportion to the respective percentage interest Fund II has in CDE II in an
amount sufficient to fully pay the Fund II note payable to Biolender II. On June 9, 2014, Fund II will have paid approximately $9.0 million in principal and interest payments to Biolender II (assuming CDE II exercises its right to call the CDE
II Loan for $5.7 million on June 9, 2014). At maturity then, total equity of the Fund is approximated to be $100,000, resulting from the difference of $9.1 million in principal and interest payments received less $9.0 million in principal
and interest paid over the 7.5 year term of the notes.

Biolender II and US Bancorp entered into a put option wherein US Bancorp will have the
right to put its investment in Fund II to us near the maturity of the instruments at a price of $120,000. Management has concluded that the fair value of US Bancorps investment in Fund II at maturity of both notes (approximately
$100,000) would be less than the $120,000 US Bancorp would receive upon exercise of the put option and thus it is managements expectation that this option will be exercised. Thus, prior to maturity of both notes, it is anticipated that
the Fund will be 100% owned by Biolender II. We accounted for this option as a derivative liability that requires recognition at fair value. We utilized a probability-based, discounted cash flow approach to value the put. 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.

Salient terms and conditions of Transaction II are as follows:



| |  |  | Under a License and Asset Purchase Agreement dated as of December 8, 2006, we 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. We 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 II Loan is secured by second lien on all assets of AutovaxID for the benefit of CDE II pursuant to a Second-Lien Security Agreement between
AutovaxID and CDE II dated as of December 8, 2006. Laurus has a senior lien on the assets of AutovaxID through our security agreement with Laurus, which AutovaxID joined by way of a Joinder Agreement.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | The tax credits arising from this transaction were fully assigned to US Bancorp. AutovaxID has entered into an indemnification agreement directly with
US Bancorp that provides for indemnification in the event of tax credit recapture from events caused by AutovaxID. AutovaxID 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 of the use of the tangible property of 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 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 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 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)
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| | 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 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 CDE II; and
(xv) AutovaxID and Biovest will operate consistently with the License between AutovaxID and Biovest, and will not amend such agreement without prior written consent of CDE II. 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 AutovaxIDs control. Therefore, this
potential liability is not reflected in the consolidated financial statements.
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| |  |  | Under a Reimbursement Agreement dated as of December 8, 2006, we agreed to reimburse St. Louis Development Corp (the 0.01% owner and managing
member of CDE II) up to $32,000 annually for expenses incurred by St. Louis Development Corp in connection with its management of CDE II.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Various legal, accounting, and professional fees of $433,000 paid directly by Biovest and AutovaxID and involved in structuring this transaction were
recorded as a reduction to additional paid-in capital. Various legal and accounting fees of $180,000 paid by entities in which we have a variable interest (CDE II and Fund II) and involved in structuring this transaction were recorded as a reduction
to non-controlling interests in variable interest entities on our consolidated balance sheet. Professional fees of $115,000 involved in the continuing management of this transaction were recorded as a prepaid expense and will be amortized over a
period of seven and one half years, representing the duration of the note issued by Fund II and payable to Biolender II.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As
a result of our Chapter 11 filing on November 10, 2008, AutovaxID discontinued interest payments due on its QLICI promissory note.

Election of certain officers and directors:

On February 24, 2009, Francis E. ODonnell, Jr., M.D. was appointed to serve in the position of Chief Executive Officer (CEO).
Dr. ODonnell will continue to serve in his role as our non-executive Chairman, in addition to the role of non-executive Chairman and CEO of our parent company, Accentia and has agreed to accept the new position as CEO without any salary.

On February 24, 2009, Samuel S. Duffey, Esq. was appointed to serve in the position of our President. Mr. Duffey will continue to
serve in his role as Counsel and has agreed to accept the new position as President without any change to his current salary.

Fluctuations
in Operating Results:

Our operating results may vary significantly from quarter to quarter or year to year, depending on factors such as
timing of biopharmaceutical development and commercialization of products by our customers, the timing of increased research and



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development and sales and marketing expenditures, the timing and size of orders and the introduction of new products or processes by us. Consequently, revenues, profits or losses may vary
significantly from quarter to quarter or year to year, and revenue or profits in any period will not necessarily be indicative of results in subsequent periods.

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, 2008, which were filed as part of our Form 10-K. 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). 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 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 us in exchange for 5.0 million shares of common stock. On February 5, 2008, we granted to
Accentia the right, at Accentias sole discretion, to convert all or any part of the balance due pursuant to the intercompany debt into common stock at a conversion price equal to $1.10 per share.



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

Not Applicable.



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

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

There have been no changes in our internal controls over financial reporting identified in connection with this
evaluation that occurred during the quarter ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION



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

On November 10,
2008, we filed a voluntary petition for reorganization under Chapter 11 in the Bankruptcy Court. During the pendency of the Chapter 11 proceedings, we will operate our business as a debtor-in-possession in accordance with the provisions of Chapter
11, and will be subject to the jurisdiction of the Bankruptcy Court.

On August 4, 2008, we were served with a summons and complaint filed
in California Superior Court on behalf of Clinstar LLC for breach of contract for non-payment of certain fees for clinical trial studies and pass-through expenses in the amount of $385,000. We intend to seek to dismiss this litigation and plan to
defend these claims vigorously. Upon the filing of our Chapter 11 petition on November 10, 2008, this litigation was automatically stayed pursuant to provisions of federal bankruptcy law.

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

Further, from time to time we are subject to various legal
proceedings in the normal course of business, some of which are covered by insurance.



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

There have been no material
changes from the risk factors disclosed in Item 1A of Part I of our Form 10-K for the year ended September 30, 2008.



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

None



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

None



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



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

Department of
Defense Contract:

On September 10, 2009, we entered into a $1.5 million contract with the U.S. Department of Defense Naval
Health Research Center (NHRC) to further develop the AutovaxID and to explore potential production of additional vaccines including vaccines for viral indications such as influenza. Active research is currently ongoing to establish
the instruments adaptability and efficiency for propagation of avian and swine influenza viral strains. Under NHRC studies conducted in San Diego, California, preliminary results are showing the AutovaxID to be a valuable technology
for production of these and other agents of military importance. Our perfusion-based bioreactor systems feature a number of key advantages over other systems, the key of these being their ability to allow for extremely high cell densities and
productive cell manufacturing in systems requiring as little as 4 sq. ft. of facility space. This ability is expected to allow the production of large quantities of viral agents in BL-3 facilities using our AutovaxID automated, self-contained
bioreactors. The systems provide a high-throughput, space-efficient system for NHRC investigators to safely evaluate therapies for highly hazardous agents in secure environments. AutovaxID instruments are a highly adaptable platform for research,
diagnostic and personalized cGMP products, and we are pursuing additional defense-related contracts to potentially utilize this technology.

Grant of Orphan Drug Designation for
BiovaxID®:

On October 28, 2009, the FDA granted Orphan Drug designation to BiovaxID. With FDA Orphan Drug designation, we have a seven-year period of market
exclusivity for BiovaxID upon approval, thereby offering competitive protection from similar drugs of the same class. Orphan Drug designation also provides us with eligibility to receive potential tax credit benefits, potential grant funding for
research and development and significantly reduced filing fees for marketing applications.

Termination of Distribution Agreement:

Effective March 21, 2010, the Company terminated its non-exclusive distribution agreement with VWR for the sale of our AutovaxID
instruments.

Appointment of Certain Directors:

On June 23, 2010, Edmund C. King, CPA was appointed to the Board to serve as a Director to fill the vacancy occasioned by the resignation (effective
November 24, 2008) of Robert Weiss, our designated Financial Expert/Director. Mr. King began serving as a Director commencing on June 23, 2010 and will continue to serve as a Director for the remainder of the term of that Director
position and until his successor is duly elected and qualified. The Board has determined that Mr. King is to serve as the designated Financial Expert of the Board and meets the applicable requirements of independence so as to allow
us to comply, as and when necessary, with the requirements of the Sarbanes-Oxley Act.



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NMTC Transactions I and II Compromises:

In July 2010, we and certain affiliates entered into an agreement (the Worcester Restructuring Agreement) with Telesis CDE Corporation and
Telesis CDE Two, LLC (collectively, Telesis), contingent upon submission to and approval by the Bankruptcy Court. The Worcester Restructuring Agreement effectively terminates all agreements and obligations of all parties pursuant to
Transaction I, (see Item 2 for further discussion of this transaction) in consideration of retention by Telesis of an unsecured claim in our Chapter 11 proceeding in the amount of $0.3 million along with a settlement payment in the amount of $85,000
to defray certain legal and administrative expenses incurred by Telesis. Upon approval by the Bankruptcy Court, our Guaranty, the Guaranty by our parent, Accentia, and all subsidiary Guaranties from affiliates and third parties and all other
obligations to all parties to Transaction I will be terminated.

In July 2010, we and certain affiliates entered into an agreement (the
St. Louis Restructuring Agreement) with St. Louis Development Corporation and Saint Louis New Markets Tax Credit Fund II, LLC (collectively, SLDC), contingent upon submission to and approval by the Bankruptcy Court. The St.
Louis Restructuring Agreement effectively terminates all agreements and obligations of all parties pursuant to Transaction II, (see Item 2 for further discussion of this transaction) in consideration of retention by SLDC of an unsecured claim in our
Chapter 11 proceeding in the amount of $0.16 million along with a settlement payment in the amount of $62,000 to defray certain legal and administrative expenses incurred by SLDC. Upon approval by the Bankruptcy Court, our Guaranty, the Guaranty by
our parent, Accentia, and all subsidiary Guaranties from affiliates and third parties and all other obligations to all parties to Transaction II will be terminated.

Filing of Plan of Reorganization

On
May 14, 2010, we filed our Joint Plan of Reorganization (the Plan) and on July 2, 2010, we filed our Disclosure Statement with the Bankruptcy Court. The Bankruptcy Court will schedule a hearing on the Disclosure Statement,
anticipated to take place in early August 2010.



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

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



|              |  |                                                                   
|------------- |  | ------------------------------------------------------------------
|ExhibitNumber |  | Description                                                       
|31.1          |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
|              | 
|31.2          |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
|              | 
|32.1          |  | 18 U.S.C. Section 1350 Certification of Chief Executive Officer.  
|              | 
|32.2          |  | 18 U.S.C. Section 1350 Certification of Chief Financial Officer.  



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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: July 8, 2010 |  |  |  | /s/ Francis E. ODonnell, Jr.                                 
|                   |  |  |  | Francis E. ODonnell, Jr., M.D.                               
|                   |  |  |  | Chairman of the Board; Chief Executive Officer; Director      
|                   |  |  |  | (Principal Executive Officer)                                 
|                   |  | 
|Date: July 8, 2010 |  |  |  | /s/ Alan M. Pearce                                            
|                   |  |  |  | Alan M. Pearce                                                
|                   |  |  |  | Chief Financial Officer                                       
|                   |  |  |  | (Principal Financial Officer and Principal Accounting Officer)