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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended March 31, 2007

OR



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

Commission file number 0-11480



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BIOVEST INTERNATIONAL, INC.

(Exact
name of issuer as specified in its charter)



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

377 Plantation Street, Worcester MA 01605

(Address of principal executive offices) (Zip Code)

(813) 864-2554

Registrants telephone number, including area code



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

None

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

Common Stock, par value $0.01 per
share

(Title of class)





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

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

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

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

As of
April 30, 2007, there were 94,473,067 shares of the registrants Common Stock outstanding.



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Forward-Looking Statements

Statements in this quarterly report on Form 10-Q that are not strictly historical in nature are forward-looking statements. These statements may include, but are not limited to, statements about: the timing of the commencement, enrollment,
and completion of our clinical trials for our product candidates; the progress or success of our product development programs; the status of regulatory approvals for our product candidates; the timing of product launches; our ability to protect our
intellectual property and operate our business without infringing upon the intellectual property rights of others; and our estimates for future performance, anticipated operating losses, future revenues, capital requirements, and our needs for
additional financing. In some cases, you can identify forward-looking statements by terms such as anticipates, believes, could, estimates, expects, intends, may,
plans, potential, predicts, projects, should, will, would, goal, or other variations of these terms (including their use in the negative) or by
discussions of strategies, plans or intentions. These statements are only predictions based on current information and expectations and involve a number of risks and uncertainties. The underlying information and expectations are likely to change
over time. Actual events or results may differ materially from those projected in the forward-looking statements due to various factors, including, but not limited to, those set forth under the caption Risk Factors in ITEM 1.
BUSINESS of our Form 10-KSB for the fiscal year ended September 30, 2006 and those set forth in our other filings with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information, future events or otherwise.



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INDEX

BIOVEST INTERNATIONAL, INC.



|                                                                                                                       |  |                                                                                       |  |     
|---------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                                                                                                                       |  |                                                                                       |  | Page
|PART I.                                                                                                                |  | FINANCIAL INFORMATION                                                                 |  |     
|ITEM 1.                                                                                                                |  | Financial Statements                                                                  |  |     
|Condensed Consolidated Balance Sheets as of March 31, 2007 (unaudited) and September 30, 2006                          |  | 4                                                                                    
|Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2007 and 2006 (unaudited) |  | 6                                                                                    
|Condensed Consolidated Statement of Stockholders Deficit for the Six Months Ended March 31, 2007 (unaudited)          |  | 7                                                                                    
|Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2007 and 2006 (unaudited)           |  | 8                                                                                    
|Notes to Condensed Consolidated Financial Statements                                                                   |  | 10                                                                                   
|                                                                                                                       |  |                                                                                      
|ITEM 2.                                                                                                                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 24  
|ITEM 3.                                                                                                                |  | Quantitative and Qualitative Disclosure About Market Risk                             |  | 30  
|ITEM 4.                                                                                                                |  | Controls and Procedures                                                               |  | 30  
|                                                                                                                       |  |                                                                                      
|PART II.                                                                                                               |  | OTHER INFORMATION                                                                     |  |     
|ITEM 1.                                                                                                                |  | Legal Proceedings                                                                     |  | 31  
|ITEM 1A.                                                                                                               |  | Risk Factors                                                                          |  | 31  
|ITEM 2.                                                                                                                |  | Exhibits                                                                              |  | 31  
|ITEM 2.                                                                                                                |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 31  
|ITEM 3.                                                                                                                |  | Defaults Upon Senior Securities                                                       |  | 31  
|ITEM 4                                                                                                                 |  | Submission of Matters to a Vote of Security Holders                                   |  | 31  
|ITEM 5                                                                                                                 |  | Other Information                                                                     |  | 31  
|ITEM 6                                                                                                                 |  | Exhibits                                                                              |  | 31  



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                   |  |                            |           |                    |   |          
|------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | --------- | ------------------ | - | ---------
|                                                                                                                   |  | March 31, 2007 (Unaudited) |           | September 30, 2006
|ASSETS                                                                                                             |  |                            |           |                    |   |          
|Current assets:                                                                                                    |  |                            |           |                    |   |          
|Cash                                                                                                               |  | $                          | 2,027,000 |                    | $ | 460,000  
|Restricted cash                                                                                                    |  |                            |          |                    |   | 2,551,000
|Accounts receivable, net of $0.02 million allowance for doubtful accounts at March 31, 2007 and September 30, 2006 |  |                            | 1,063,000 |                    |   | 749,000  
|Costs and estimated earnings in excess of billings on uncompleted contracts                                        |  |                            | 92,000    |                    |   | 6,000    
|Inventories                                                                                                        |  |                            | 474,000   |                    |   | 228,000  
|Prepaid expenses and other current assets                                                                          |  |                            | 522,000   |                    |   | 266,000  
|                                                                                                                   |  |                            |           |                    |   |          
|Total current assets                                                                                               |  |                            | 4,178,000 |                    |   | 4,260,000
|Property, plant and equipment, net                                                                                 |  |                            | 812,000   |                    |   | 898,000  
|Other assets:                                                                                                      |  |                            |           |                    |   |          
|Patents and trademarks, net                                                                                        |  |                            | 364,000   |                    |   | 379,000  
|Deferred financing costs                                                                                           |  |                            | 954,000   |                    |   | 776,000  
|Reorganization value in excess of amounts allocated to identifiable assets                                         |  |                            | 2,131,000 |                    |   | 2,131,000
|                                                                                                                   |  |                            |           |                    |   |          
|                                                                                                                   |  | $                          | 8,439,000 |                    | $ | 8,444,000
|                                                                                                                   |  |                            |           |                    |   |          



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Contd)



|                                                                                                                                                                      |  |                           |             |   |                             |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | --------------------------- | - | ----------- | -
|                                                                                                                                                                      |  | March 31, 2007(Unaudited) |             |   | September 30,2006 (Audited) |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                 |  |                           |             |   |                             |   |             |  
|Current liabilities:                                                                                                                                                  |  |                           |             |   |                             |   |             |  
|Notes Payable                                                                                                                                                         |  | $                         | 1,757,000   |   |                             | $ | 2,000,000   |  
|Current maturities of long-term debt                                                                                                                                  |  |                           | 2,494,000   |   |                             |   | 900,000     |  
|Accounts payable (including $1.1 million and $0.7 million due to affiliate at March 31, 2007, and September 30, 2006
respectively)                                    |  |                           | 3,525,000   |   |                             |   | 2,627,000   |  
|Customer deposits                                                                                                                                                     |  |                           | 374,000     |   |                             |   | 392,000     |  
|Accrued liabilities:                                                                                                                                                  |  |                           |             |   |                             |   |             |  
|Compensation and related taxes                                                                                                                                        |  |                           | 1,301,000   |   |                             |   | 1,521,000   |  
|Other                                                                                                                                                                 |  |                           | 1,385,000   |   |                             |   | 974,000     |  
|Billings in excess of costs and estimated earnings on uncompleted contracts                                                                                           |  |                           | 94,000      |   |                             |   | 137,000     |  
|Due to related party                                                                                                                                                  |  |                           | 9,181,000   |   |                             |   | 4,715,000   |  
|                                                                                                                                                                      |  |                           |             |   |                             |   |             |  
|Total current liabilities                                                                                                                                             |  |                           | 20,111,000  |   |                             |   | 13,266,000  |  
|Long term debt, less current maturities                                                                                                                               |  |                           | 335,000     |   |                             |   | 1,862,000   |  
|Derivative liability                                                                                                                                                  |  |                           | 426,000     |   |                             |   | 236,000     |  
|                                                                                                                                                                      |  |                           |             |   |                             |   |             |  
|Total liabilities                                                                                                                                                     |  |                           | 20,872,000  |   |                             |   | 15,364,000  |  
|                                                                                                                                                                      |  |                           |             |   |                             |   |             |  
|Non-controlling interests in variable interest entities (Note 15)                                                                                                     |  |                           | 5,596,000   |   |                             |   | 3,600,000   |  
|                                                                                                                                                                      |  |                           |             |   |                             |   |             |  
|Minority interest in consolidated subsidiary (Note 8)                                                                                                                 |  |                           |            |   |                             |   | 6,000,000   |  
|                                                                                                                                                                      |  |                           |             |   |                             |   |             |  
|Commitments and contingencies (Notes 13 and 14)                                                                                                                       |  |                           |            |   |                             |   |            |  
|Stockholders deficit:                                                                                                                                                |  |                           |             |   |                             |   |             |  
|Preferred stock, $.01 par value, 50,000,000 shares authorized; 0 issued and outstanding                                                                               |  |                           |            |   |                             |   |            |  
|Common stock, $.01 par value, 300,000,000 shares authorized; 94,473,067 and 74,126,635 issued and outstanding at March 31, 2007, and
September 30, 2006, respectively |  |                           | 945,000     |   |                             |   | 741,000     |  
|Additional paid-in capital                                                                                                                                            |  |                           | 62,721,000  |   |                             |   | 35,034,000  |  
|Accumulated deficit                                                                                                                                                   |  |                           | (81,695,000 | ) |                             |   | (52,295,000 | )
|                                                                                                                                                                      |  |                           |             |   |                             |   |             |  
|Total stockholders deficit                                                                                                                                           |  |                           | (18,029,000 | ) |                             |   | (16,520,000 | )
|                                                                                                                                                                      |  |                           |             |   |                             |   |             |  
|                                                                                                                                                                      |  | $                         | 8,439,000   |   |                             | $ | 8,444,000   |  
|                                                                                                                                                                      |  |                           |             |   |                             |   |             |  



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                                                  |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | -------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ---------- | -
|                                                                                                  |  | Three Months Ended March 31, |            |   | Six Months Ended March 31, |  
|                                                                                                  |  | 2007                         |            |   | 2006                       |   |            | 2007 |  |   | 2006        |  
|Revenues:                                                                                         |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Products                                                                                          |  | $                            | 677,000    |   |                            | $ | 1,706,000  |      |  | $ | 1,475,000   |   |  | $ | 2,157,000  |  
|Services                                                                                          |  |                              | 875,000    |   |                            |   | 583,000    |      |  |   | 1,404,000   |   |  |   | 1,217,000  |  
|                                                                                                  |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Total revenues                                                                                    |  |                              | 1,552,000  |   |                            |   | 2,289,000  |      |  |   | 2,879,000   |   |  |   | 3,374,000  |  
|                                                                                                  |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Operating costs and expenses:                                                                     |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Cost of sales:                                                                                    |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Products                                                                                          |  |                              | 456,000    |   |                            |   | 732,000    |      |  |   | 855,000     |   |  |   | 947,000    |  
|Services                                                                                          |  |                              | 395,000    |   |                            |   | 503,000    |      |  |   | 763,000     |   |  |   | 891,000    |  
|Research and development                                                                          |  |                              | 3,131,000  |   |                            |   | 2,570,000  |      |  |   | 6,065,000   |   |  |   | 5,341,000  |  
|General and administrative                                                                        |  |                              | 1,889,000  |   |                            |   | 1,102,000  |      |  |   | 3,160,000   |   |  |   | 1,718,000  |  
|Impairment of investment in consolidated subsidiary (Note 8)                                      |  |                              |           |   |                            |   |           |      |  |   | 3,775,000   |   |  |   |           |  
|Loss on restructuring of related party royalty agreement (Note 8)                                 |  |                              |           |   |                            |   |           |      |  |   | 6,637,000   |   |  |   |           |  
|                                                                                                  |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Total operating costs and expenses                                                                |  |                              | 5,871,000  |   |                            |   | 4,907,000  |      |  |   | 21,255,000  |   |  |   | 8,897,000  |  
|                                                                                                  |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Loss from operations                                                                              |  |                              | (4,319,000 | ) |                            |   | (2,618,000 | )    |  |   | (18,376,000 | ) |  |   | (5,523,000 | )
|                                                                                                  |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Other income (expense):                                                                           |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Interest expense, net                                                                             |  |                              | (1,556,000 | ) |                            |   | (161,000   | )    |  |   | (3, 591,000 | ) |  |   | (270,000   | )
|Termination of related party anti-dilution agreement (Note 8)                                     |  |                              |           |   |                            |   |           |      |  |   | (6,637,000  | ) |  |   |           |  
|Derivative loss                                                                                   |  |                              | (73,000    | ) |                            |   |           |      |  |   | (59,000     | ) |  |   |           |  
|Related party financing cost (Note 8)                                                             |  |                              |           |   |                            |   |           |      |  |   | (1,232,000  | ) |  |   |           |  
|Other expense                                                                                     |  |                              |           |   |                            |   |           |      |  |   | (3,000      | ) |  |   |           |  
|Other income                                                                                      |  |                              | 20,000     |   |                            |   |           |      |  |   | 20,000      |   |  |   |           |  
|                                                                                                  |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|                                                                                                  |  |                              | (1,609,000 | ) |                            |   | (161,000   | )    |  |   | (11,502,000 | ) |  |   | (270,000   | )
|                                                                                                  |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Net loss before non-controlling interest in loss from variable interest entities and income taxes |  | $                            | (5,928,000 | ) |                            | $ | (2,779,000 | )    |  | $ | (29,878,000 | ) |  | $ | (5,793,000 | )
|Non-controlling interest in loss from variable interest entities                                  |  | $                            | 478,000    |   |                            |   |           |      |  | $ | 478,000     |   |  |   |           |  
|                                                                                                  |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Net loss                                                                                          |  | $                            | (5,450,000 | ) |                            | $ | (2,779,000 | )    |  | $ | (29,400,000 | ) |  | $ | (5,793,000 | )
|Net loss per common share:                                                                        |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Basic and diluted                                                                                 |  | $                            | (0.06      | ) |                            | $ | (0.03      | )    |  | $ | (0.32       | ) |  | $ | (0.07      | )
|                                                                                                  |  |                              |            |  
|Weighted average shares outstanding:                                                              |  |                              |            |   |                            |   |            |      |  |   |             |   |  |   |            |  
|Basic and diluted                                                                                 |  |                              | 94,469,400 |   |                            |   | 80,390,663 |      |  |   | 90,921,766  |   |  |   | 79,522,895 |  



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT

FOR THE SIX MONTHS ENDED MARCH 31, 2007

(unaudited)



|                                                                                        |  |              |  |                          |         |                    |   |            |       |   |             |   |  |   |             |  
|--------------------------------------------------------------------------------------- |  | ------------ |  | ------------------------ | ------- | ------------------ | - | ---------- | ----- | - | ----------- | - |  | - | ----------- | -
|                                                                                        |  | Common Stock |  | AdditionalPaid-inCapital |         | AccumulatedDeficit |   |            | Total |  
|Balances at September 30, 2006                                                          |  | 74,126,635   |  | $                        | 741,000 |                    | $ | 35,034,000 |       | $ | (52,295,000 | ) |  | $ | (16,520,000 | )
|Employee stock-based compensation                                                       |  |             |  |                          |        |                    |   | 912,000    |       |   |            |   |  |   | 912,000     |  
|Options issued for accrued bonuses                                                      |  |             |  |                          |        |                    |   | 392,000    |       |   |            |   |  |   | 392,000     |  
|Stock issued for related-party contract modification                                    |  | 10,000,000   |  |                          | 100,000 |                    |   | 9,400,000  |       |   |            |   |  |   | 9,500,000   |  
|Stock issued for related-party purchase of minority interest in consolidated subsidiary |  | 10,000,000   |  |                          | 100,000 |                    |   | 5,900,000  |       |   |            |   |  |   | 6,000,000   |  
|Sale of stock                                                                           |  | 326,098      |  |                          | 4,000   |                    |   | 264,000    |       |   |            |   |  |   | 268,000     |  
|Exercise of stock options                                                               |  | 20,334       |  |                          |        |                    |   | 9,000      |       |   |            |   |  |   | 9,000       |  
|Major stockholder expense incurred on behalf of the Company                             |  |             |  |                          |        |                    |   | 8,780,000  |       |   |            |   |  |   | 8,780,000   |  
|Warrants issued to guarantee financing transaction                                      |  |             |  |                          |        |                    |   | 2,030,000  |       |   |            |   |  |   | 2,030,000   |  
|Net loss                                                                                |  |             |  |                          |        |                    |   |           |       |   | (29,400,000 | ) |  |   | (29,400,000 | )
|                                                                                        |  |              |  |                          |         |                    |   |            |       |   |             |   |  |   |             |  
|Balances at March 31, 2007                                                              |  | 94,473,067   |  | $                        | 945,000 |                    | $ | 62,721,000 |       | $ | (81,695,000 | ) |  | $ | (18,029,000 | )
|                                                                                        |  |              |  |                          |         |                    |   |            |       |   |             |   |  |   |             |  

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



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                               |  |                            |             |   |      |   |            |  
|------------------------------------------------------------------------------ |  | -------------------------- | ----------- | - | ---- | - | ---------- | -
|                                                                               |  | Six Months Ended March 31, |            
|                                                                               |  | 2007                       |             |   | 2006 |  
|Cash flows from operating activities:                                          |  |                            |             |   |      |   |            |  
|Net loss                                                                       |  | $                          | (29,400,000 | ) |      | $ | (5,793,000 | )
|Adjustments to reconcile net loss to net cash flows from operating activities: |  |                            |             |   |      |   |            |  
|Depreciation                                                                   |  |                            | 181,000     |   |      |   | 223,000    |  
|Amortization                                                                   |  |                            | 15,000      |   |      |   | 15,000     |  
|Employee stock-based compensation                                              |  |                            | 912,000     |   |      |   | 517,000    |  
|Impairment of investment in consolidated subsidiary                            |  |                            | 3,775,000   |   |      |   |           |  
|Loss on restructuring of related party royalty agreement                       |  |                            | 6,637,000   |   |      |   |           |  
|Related party financing fee                                                    |  |                            | 1,232,000   |   |      |   |           |  
|Termination of related party anti-dilution agreement                           |  |                            | 6,637,000   |   |      |   |           |  
|Amortization of discounts on notes payable                                     |  |                            | 472,000     |   |      |   | 29,000     |  
|Amortization of deferred loan costs                                            |  |                            | 137,000     |   |      |   |           |  
|Warrants issued for guarantees of financing                                    |  |                            | 2,030,000   |   |      |   |           |  
|Non-controlling interest in loss of variable interest entities                 |  |                            | (478,000    | ) |      |   |            |  
|Derivative loss                                                                |  |                            | 59,000      |   |      |   |           |  
|Changes in cash resulting from changes in:                                     |  |                            |             |   |      |   |            |  
|Accounts receivable                                                            |  |                            | (313,000    | ) |      |   | (232,000   | )
|Costs and estimated earnings in excess of billings on uncompleted contracts    |  |                            | (86,000     | ) |      |   | (47,000    | )
|Inventories                                                                    |  |                            | (246,000    | ) |      |   | (143,000   | )
|Other assets                                                                   |  |                            | (256,000    | ) |      |   | (16,000    | )
|Accounts payable and accrued liabilities                                       |  |                            | 1,479,000   |   |      |   | 974,000    |  
|Customer deposits                                                              |  |                            | (18,000     | ) |      |   | (87,000    | )
|Billings in excess of costs and estimated earnings on uncompleted contracts    |  |                            | (43,000     | ) |      |   | 3,000      |  
|                                                                               |  |                            |             |   |      |   |            |  
|Net cash flows used in operating activities                                    |  |                            | (7,274,000  | ) |      |   | (4,557,000 | )
|                                                                               |  |                            |             |   |      |   |            |  
|Cash flows from investing activities:                                          |  |                            |             |   |      |   |            |  
|Purchase of property and equipment                                             |  |                            | (94,000     | ) |      |   | (309,000   | )
|Release of restricted cash                                                     |  |                            | 2,551,000   |   |      |   |           |  
|                                                                               |  |                            |             |   |      |   |            |  
|Net cash flows from investing activities                                       |  |                            | 2,457,000   |   |      |   | (309,000   | )
|                                                                               |  |                            |             |   |      |   |            |  
|Cash flows from financing activities:                                          |  |                            |             |   |      |   |            |  
|Repayment of notes payable and long-term debt                                  |  |                            | (2,622,000  | ) |      |   | (65,000    | )
|Advances from Accentia, net                                                    |  |                            | 4,466,000   |   |      |   | 4,452,000  |  
|Proceeds from long term debt                                                   |  |                            | 2,105,000   |   |      |   |           |  
|Proceeds from stock subscription receivable                                    |  |                            |            |   |      |   | 682,000    |  
|Proceeds from sale of stock                                                    |  |                            | 268,000     |   |      |   |           |  
|Proceeds from exercise of stock option                                         |  |                            | 9,000       |   |      |   |           |  
|Payment of deferred financing costs                                            |  |                            | (242,000    | ) |      |   |           |  
|Proceeds from non-controlling-interest investment in variable interest entity  |  |                            | 2,400,000   |   |      |   |           |  
|                                                                               |  |                            |             |   |      |   |            |  
|Net cash flows from financing activities                                       |  |                            | 6,384,000   |   |      |   | 5,069,000  |  
|                                                                               |  |                            |             |   |      |   |            |  
|Net change in cash                                                             |  |                            | 1,567,000   |   |      |   | 203,000    |  
|                                                                               |  |                            |             |   |      |   |            |  
|Cash at beginning of period                                                    |  |                            | 460,000     |   |      |   | 32,000     |  
|                                                                               |  |                            |             |   |      |   |            |  
|Cash at end of period                                                          |  | $                          | 2,027,000   |   |      | $ | 235,000    |  
|                                                                               |  |                            |             |   |      |   |            |  



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                           |  |                            |           |      |   |          
|-------------------------------------------------------------------------- |  | -------------------------- | --------- | ---- | - | ---------
|                                                                           |  | Six Months Ended March 31,
|                                                                           |  | 2007                       |           | 2006
|Supplemental disclosure of cash flow information:                          |  |                            |           |      |   |          
|                                                                           |  |                           
|Non-cash financing activities:                                             |  |                            |           |      |   |          
|Conversion of notes payable and accrued interest to equity                 |  | $                          |          |      | $ | 5,023,000
|Issuance of Common Stock to retire convertible debt                        |  | $                          |          |      | $ | 1,282,000
|Restricted cash proceeds from long term note payable                       |  | $                          |          |      | $ | 7,799,000
|Issuance of warrant (discount on note payable)                             |  | $                          |          |      | $ | 4,818,000
|Issuance of note payable                                                   |  | $                          |          |      | $ | 2,981,000
|Advances from Accentia to retire convertible debt into Accentia equity     |  | $                          |          |      | $ | 3,741,000
|Issuance of long term debt for accrued expense                             |  | $                          |          |      | $ | 200,000  
|Issuance of stock to purchase minority interest in consolidated subsidiary |  | $                          | 6,000,000 |      | $ |         
|Stock issued for payment of accrued expenses                               |  | $                          |          |      | $ | 408,000  
|Options issued for accrued bonuses                                         |  | $                          | 392,000   |      | $ |         
|Stock compensation as prepaid expense                                      |  | $                          |          |      | $ | 62,000   
|Cash paid for interest during period:                                      |  | $                          | 274,000   |      | $ | 44,000   



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)

1. Description of the company:

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

The Company has developed an automated cell culture instrument, called AutovaxID, which reduces the manpower and production space requirements and costs associated with the production of monoclonal antibodies, a critical step in the production of personalized therapeutics and vaccines. This instrument will
facilitate more efficient commercial production of BiovaxID following approval of the vaccine, if and when it is obtained. In May, 2006, the Company was informed that no further FDA review or approval is required to market the AutovaxID instruments.
In December, 2006, the Company began commercially marketing the automated instrument, and acquired a facility in St. Louis, Missouri, to market, assemble and distribute the instrument through its wholly-owned subsidiary AutovaxID, Inc. Delivery of
the new instruments began in March, 2007. The St. Louis facility is expected to be operational in June 2007.

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

As of March 31, 2007, the Company is a 77% owned subsidiary of Accentia Biopharmaceuticals, Inc. (Accentia).

2. Significant accounting policies:

Basis of
presentation:

The accompanying unaudited condensed financial statements have been derived from unaudited interim financial information prepared in
accordance with the rules and regulations of the Securities and Exchange Commission for quarterly financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not
misleading. The 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, 2007 are not necessarily indicative of the results that may be expected for the
entire fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Annual Report on Form 10-KSB for the fiscal year ended September 30, 2006.



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



Consolidation policy:

The consolidated financial statements represent the consolidation of wholly-owned companies and interests in variable interest entities where the Company has a controlling financial interest or has been determined to be the primary
beneficiary under Financial Accounting Standards Board (FASB) Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46R). The 2007 condensed consolidated financial statements include Biovest International,
Inc., its wholly owned subsidiaries Biovax, Inc., AutovaxID, Inc., Biolender LLC and Biolender II LLC; and certain variable interest entities of the company, Biovax Investments LLC, Telesis CDE Two LLC, AutovaxID Investment LLC, and St. Louis New
Markets Tax Credit Fund II LLC. All significant inter-company balances and transactions have been eliminated.

Revenue recognition:

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

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

Recent Accounting Pronouncements:

In September, 2006 the SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides guidance on the process of quantifying financial statement misstatements, advising companies to use both a balance sheet (iron
curtain) and an income statement (rollover) approach when quantifying and evaluating the materiality of a misstatement. The iron curtain approach quantifies a misstatement based on the effects of correcting the misstatement
existing in the balance sheet at the end of the reporting period. The rollover approach quantifies a misstatement based on the amount of the error originating in the current period income statement, including the reversing effect of prior year
misstatements. The use of this method can lead to the accumulation of misstatements in the balance sheet. Under the guidance of SAB 108, the Company will be required to adjust its financial statements if either the iron curtain or rollover approach
results in the quantification of a material misstatement. Previously filed reports would not be amended, but would be corrected the next time the company files prior year financial statements. Companies are allowed to record a one-time cumulative
effect adjustment to correct errors in prior years that previously had been considered immaterial based on their previous approach. SAB 108 is effective for the Company upon issuance of its Fiscal 2007 annual financial statements. However, early
application of SAB 108 is permitted for interim periods prior to the issuance of the annual financial statements. The Company is currently assessing the effect of SAB 108, if any, on its financial position or results of operations.

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



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



Reclassifications:

Certain reclassifications have been made to the 2006 Consolidated Financial Statements to conform to the 2007 presentation.

3. Liquidity and
management plans:

During the six months ended March 31, 2007, the Company incurred a net loss of $29.4 million, of which $18 million was
attributable to non-cash charges resulting from three equity transactions between the Company, Accentia, and Laurus, the Companys and Accentias senior lender, regarding modification and termination of certain agreements. See Note 8. At
March 31, 2007, the Company had an accumulated deficit of approximately $81.7 million and working capital deficit of approximately $15.9 million. The Company has been meeting its cash requirements through proceeds from its cell culture and
instrument manufacturing activities, the use of cash on hand, trade vendor credit and short-term borrowings (primarily from affiliates), the sale of stock to, and inter-company demand loans from, Accentia Biopharmaceuticals, Inc.
(Accentia) as discussed below. The Companys auditors issued a going concern uncertainty on the financial statements for the year ended September 30, 2006, citing significant losses and working capital deficits at
that date, which raised substantial doubt about the Companys ability to continue as a going concern.

Phase 3 Clinical Trial and planned
commercialization expenditures:

Continued development activities related to BiovaxID, including
the Phase 3 clinical trials, are expected to result in substantial, and potentially increasing, expenditures over the next several years before any revenues from this product development materialize. While the Company pursues FDA approval of
BiovaxID, the Company plans, subject to the availability of financing, to make significant investments in laboratory equipment, including the development of automated cell production instruments, and potentially space and related capability
necessary to support commercial vaccine production requirements anticipated upon FDA approval of BiovaxID. The Company has filed an amendment to the trial Protocol with the FDA covering its Phase 3 clinical trial to expand the trial to include
patients who receive initial passive immunotherapy treatment including Rituxan®, and has
added a number of Clinical Trial sites in the Ukraine and Russia in order to significantly accelerate patient accrual in the Clinical Trials. The Company anticipates that expenditures related to vaccine and equipment development and
commercialization will, subject to availability of financing, increase significantly over those experienced in the past. The Companys ability to timely access required financing will continue to be essential to support the ongoing Phase 3
clinical trial. The Companys inability to obtain required funds or any substantial delay in obtaining required funds will have a material adverse effect on the ongoing clinical trial and commercialization efforts.

In addition, the Company established an assembly and distribution facility in December 2006, for the commercial production of AutovaxID instruments, which is anticipated
to be operational in June 2007. The company began producing revenues from the sale of AutovaxID instruments in the three months ended March 31, 2007. The completion of the AutovaxID dedicated facility and anticipated start-up will require
significant expenditures for leasehold improvements, construction, equipment, and personnel costs, in advance of significant revenues from the commercial sale of AutovaxID instruments. Approximately $1.4 million of the $2.0 million cash on hand at
March 31, 2007 was allocated for this purpose. The Company believes the allocated funds on hand will be sufficient to complete construction and commence operations at the new assembly and distribution facility, however, there are no assurances
that the facility will produce positive cash flow once it is completed and operations have commenced.

Advances to the Company by Accentia:

During the six months ended March 31, 2007, the Company borrowed an additional $4.5 million from Accentia to increase the total balance due to
Accentia to $9.2 million. The advances by Accentia as of March 31, 2007 consisted of cash loans, payments made by Accentia directly to third parties on the Companys behalf, allocated inter-company expenses, accrued interest of $0.7
million, and amounts owed in connection with the conversion of notes outstanding at the time of Accentias initial investment in June 2003. The $9.2 million balance of the inter-company loans is evidenced by three secured promissory demand
notes.



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



Additional New Market Tax Credit financing:

On December 8, 2006, the Company through its wholly-owned subsidiary, AutovaxID, Inc., closed a financing transaction that was structured in an effort to obtain certain advantages by virtue of being located in a
qualifying census tract. The Companys new AutovaxID assembly and distribution facility is located in such a tract. The series of transactions, fully described in Note 14, resulted in the Company receiving approximately $4.5 million for
facility improvements, startup-costs and general working capital.

Notes payable:

On January 16, 2007, the Company issued a promissory note to the Pulaski Bank in the amount of $1.0 million. This loan bears interest at prime less 0.5% (currently 7.75%) and is payable July 5, 2007. In
addition, the Company issued an additional promissory note to Pulaski bank on March 22, 2007, in the amount of $0.75 million bearing interest at prime less 0.5% (currently 7.75%) with an original maturity date of April 21, 2007. The
maturity date of the note was subsequently extended to May 21, 2007. The Company issued warrants to purchase 1,388,636 shares of the Companys common stock to certain officers and directors in conjunction with their guarantee of these
notes payable.

Amendment to Laurus Loan:

Subsequent
to March 31, 2007, the Company entered into an amendment agreement with its senior lender, Laurus, to defer payments of principal on its $7.8 million loan until August, 2007, and to allow an increase in indebtedness by $7.0 million for future
bridge financing purposes. In return for the forbearance, the company issued to Laurus a right to a minimum royalty stream on AutovaxID instrument sales. See Note 6.

Additional expected financing activity:

Management expects to continue to meet its cash requirements through the use
of cash on hand, trade vendor credit, short-term borrowings, debt and equity financings and strategic transactions such as collaborations and licensing. Accentia has advanced all payments required under its investment agreement obligation of $20
million. Additionally, Accentia has loaned the Company or otherwise paid on its behalf an additional $9.2 million through March 31, 2007, through the inter-company demand loans discussed above. While investments and loans from Accentia have
been a primary source of financing for the Company since 2003, the Company has been informed by Accentia that provisions of certain of its loan and debenture financing agreements preclude Accentia from making any additional direct cash contributions
to the Company. Accordingly, the Companys ability to continue present operations and meet obligations for vaccine development is dependent upon the Companys ability to obtain significant external funding in the near term from sources
other than Accentia. Additional sources of funding have not been established; however, additional financing is currently being sought by the Company from a number of sources other than Accentia, including the sale of equity or debt securities,
strategic collaborations, recognized research funding programs, as well as domestic and/or foreign licensing of our vaccine. Management is currently in the process of exploring various financing alternatives, and has hired an investment banking firm
to assist in these efforts. There can be no assurance that the Company will be successful in securing such financing at acceptable terms, if at all. If adequate funds are not available from the foregoing sources, or if the Company determines it to
otherwise be in the Companys best interest, the Company may consider additional strategic financing options, including sales of assets or business units that are non-essential to the ongoing development or future commercialization of BiovaxID
and AutovaxID, or the Company may be required to delay, reduce the scope of, or eliminate one or more of its research or development programs or curtail some or all of its commercialization efforts.

4. Concentrations of credit risk and major customer information:

The
Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support amounts due. Management performs ongoing credit evaluations of its customers. Two customers accounted for
26% and 23% of revenues for the six months ended March 31, 2007, and 38% and 39% of trade accounts receivable as of March 31, 2007. A significant amount of the Companys revenue has been derived from export sales. The Companys
export sales were 37% of revenues for the six months ended March 31, 2007, compared to 18% for the same period in 2006. For the six months ended March 31, 2007, two countries sales accounted for 26% (United Kingdom) and 8% (Canada)
of total revenue, while no single foreign country had sales in excess of 10% of revenues for the six months ended March 31, 2006.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



5. Inventories:

Inventories consist of the following:



|                |  |                           |         |                   |   |        
|--------------- |  | ------------------------- | ------- | ----------------- | - | -------
|                |  | March 31, 2007(Unaudited) |         | September 30,2006
|Finished goods  |  |                           | 73,000  |                   | $ | 34,000 
|Work-in-process |  |                           | 260,000 |                   |   | 97,000 
|Raw materials   |  |                           | 141,000 |                   |   | 97,000 
|                |  |                           |         |                   |   |        
|                |  | $                         | 474,000 |                   | $ | 228,000
|                |  |                           |         |                   |   |        

6. Long-term debt:

Long-term debt consists of the following:



|                                                                                                                                                                                                    |  |                            |            |   |                    |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------ | - | --------- | -
|                                                                                                                                                                                                    |  | March 31, 2007 (unaudited) |            |   | September 30, 2006 |  
|Note payable, Laurus Master Fund, $7,799,000 face value, variable rate (10.25% at March 31, 2007) amortizing note payable due in monthly
payments through March 31, 20091                           |  | $                          | 2,271,000  |   |                    | $ |          |  
|Note payable, Laurus Master Fund, $2,500,000 face value, prime rate (8.25% at September 30, 2006) non-amortizing note payable, originally
secured by restricted cash in escrow, due March 31, 20092 |  |                            |           |   |                    |   | 906,000   |  
|Note payable, Laurus Master Fund, $5,066,000 face value, variable rate (10.25% at September 30, 2006) amortizing note payable due in
monthly payments through March 31, 20092                       |  |                            |           |   |                    |   | 1,448,000 |  
|Notes payable, interest at 10%; due in 2007; convertible into common stock at $1.00 per share.                                                                                                      |  |                            | 47,000     |   |                    |   | 114,000   |  
|Note payable, legal settlement                                                                                                                                                                      |  |                            | 41,000     |   |                    |   | 120,000   |  
|Other                                                                                                                                                                                               |  |                            | 110,000    |   |                    |   | 88,000    |  
|Accrued interest, long-term debt                                                                                                                                                                    |  |                            | 360,000    |   |                    |   | 86,000    |  
|                                                                                                                                                                                                    |  |                            |            |   |                    |   |           |  
|                                                                                                                                                                                                    |  |                            | 2,829,000  |   |                    |   | 2,762,000 |  
|Less current maturities                                                                                                                                                                             |  |                            | (2,494,000 | ) |                    |   | (900,000  | )
|                                                                                                                                                                                                    |  |                            |            |   |                    |   |           |  
|Long-term portion of notes payable                                                                                                                                                                  |  | $                          | 335,000    |   |                    | $ | 1,862,000 |  
|                                                                                                                                                                                                    |  |                            |            |   |                    |   |           |  

---

|1 | This note is collateralized by all cash, restricted cash, accounts receivable, inventory, fixed assets and other assets. The notes also contain certain restrictive covenants.
Pursuant to the original terms of this secured promissory note, the Company was required to make certain principal and interest payments commencing in calendar 2007. The Company did not commence making such payments when originally due and reached
an understanding that such payments would not commence while the Company sought additional financing. This understanding was formalized into a letter agreement dated March 21, 2007 (the Letter Agreement). The Company closed a short-term
borrowing of $750,000 from Pulaski Bank and this Letter Agreement became effective on April 17, 2007. In addition to formalizing and continuing Laurus forbearance, the Letter Agreement rescheduled future payments due from the Company to Laurus
under the Note. Under the Letter Agreement past due and ongoing principal payments on the Note are deferred until August 1, 2007, when adjusted monthly principal payments of $0.3 million per month will commence. As consideration for the forbearance
the Company granted to Laurus a non-cancelable royalty equal to three percent 3% of world-wide net sales of AutovaxID instruments for a period of five years commencing on the earlier of May 31, 2007 or the completion of a long term financing by the
Company. Under the terms of the royalty agreement the Companys royalty payments to Laurus are required to aggregate a minimum of $8.0 million with $0.5 million of the minimum royalty being payable on December 31, 2007 and the balance (if any),
less actual royalties paid, being due at the end of the five year royalty term. In addition, upon satisfaction of certain conditions of the Letter Agreement, Laurus consented to the Company seeking and, if available, entering into bridge loans in an
aggregate amount of up to $7.0 million.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



Future maturities of long-term debt are as follows at March 31, 2007



|                          |  |   |            |  
|------------------------- |  | - | ---------- | -
|Years ending March 31,    |  |   |           
|2007                      |  | $ | 2,494,000  |  
|2008                      |  |   | 5,131,000  |  
|2009                      |  |   | 127,000    |  
|                          |  |   |            |  
|Total maturities          |  |   | 7,752,000  |  
|Less unamortized discount |  |   | (4,923,000 | )
|                          |  |   |            |  
|                          |  | $ | 2,829,000  |  
|                          |  |   |            |  

7. Notes Payable:

On January 16, 2007, the Company closed an amended and restated loan transaction (Note 1) with Pulaski Bank and Trust Company of St. Louis, MO (Pulaski), which amended the Loan Agreement dated September 5,
2006 pursuant to which Pulaski agreed to loan $1 million to the Company pursuant to an unsecured Promissory Note. The Company also closed on a second loan transaction with Pulaski Bank on March 22, 2007 (Note 2), pursuant to which
Pulaski agreed to loan an additional $0.75 million to the Company pursuant to an unsecured Promissory Note. The balance of both notes included in the accompanying 2007 consolidated financial statements includes the principal of $1.75 million plus
accrued interest of approximately $7,000.

Note 1 matures on July 5, 2007, and can be prepaid by the Company at any time without penalty. The note
bears interest at the prime rate minus .05% (7.75% per annum at March 31, 2007), requiring monthly payments of interest only commencing February 2007. The note is an unsecured obligation of the Company and is subordinated to the Companys
outstanding loan to Laurus Master Fund, Ltd. The notes are guaranteed by entities and individuals affiliated with the Company or Accentia, the majority stockholder of the Company. The Company has entered into Indemnification Agreements with each of
the guarantors.

In conjunction with the issuance of these notes payable the Company issued to the guarantors warrants to purchase an aggregate total of
1,388,636 shares of the Companys Common Stock, par value $0.01 per share, at an exercise price of $1.10 per share (the Warrants). The Warrants will expire on January 15, 2012. Under the terms of the Warrants, the guarantors
shall have piggy-back registration rights for the shares underlying the Warrants.

Note 2 matures on May 21, 2007. The note bears interest at the
prime rate minus .05% (7.75% per annum as of March 31, 2007), with interest only payment due monthly. The note is an unsecured obligation of the Company and is subordinated to the Companys outstanding loan to Laurus Master Fund, Ltd. The
note is guaranteed by entities and individuals affiliated with the Company or Accentia, the majority stockholder of the Company. The Company has entered into Indemnification Agreements with each of the guarantors. The Company issued to the
guarantors warrants to purchase an aggregate total of 406,817 shares of the Companys Common Stock, par value $0.01 per share, at an exercise price of $1.10 per share. These warrants will expire on March 21, 2012. Under the terms of the
warrants, the guarantors have piggy-back registration rights for the shares underlying the warrants.

The Company agreed to indemnify and hold harmless
each guarantor should their guarantees be called by the Lender. In addition, in the event of default by the Company resulting in a payment to the Lender by the guarantors, the Company has 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.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



8. Related Party Transactions:

Due to related party:

Due to Related Party includes amounts advanced under three secured promissory demand notes
issued to Accentia Biopharmaceuticals, Inc., bearing interest at prime rate. As of March 31, 2007, the total balance owed to Accentia under these notes was $9.2 million. Related Party interest expense of $0.3 million and $0.2 million was
incurred for the six months ended March 31, 2007 and 2006, respectively.

Modification and termination of agreements:

The Company borrowed $3.1 million from Accentia to facilitate the purchase of Biolender II in the New Market Tax Credit Transaction. This borrowing was evidenced by the
execution of an additional promissory demand note bearing interest at prime rate and $1.1 million due under this note was paid subsequent to the closing of the December New Market Tax Credit transactions and the remaining $2.0 million is included in
the March 31, 2007 balance in Due to Related Party.

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



| |  |  | The Company and Accentia entered into a Royalty Agreement that terminated and superseded the Biologics Products Commercialization Agreement (the Biologics
Commercialization Agreement), dated August 17, 2004, between the two companies. The Biologics Commercialization Agreement had provided that Accentia was the exclusive commercialization partner for the Companys biologic products and
was entitled to 49% of the Companys net profits from the sale of biologic products should Accentias ownership percentage in the Company drop below 50%. Net revenue as used in the Biologics Commercialization Agreement included all
receipts from the sale, license, sub-license, joint venture or other receipts from the biologic products less all expenses including the costs of product acquisition, research, manufacture, sales, distribution, commercialization and governmental
regulation. The new Royalty Agreement provides that Accentia is no longer the Companys exclusive commercialization partner and replaces the share of net profits with a 19.5% royalty based on net sales and license revenue of biologics products.
The products and territory subject to the Royalty Agreement remain identical to those terms as previously contained in the Biologics Commercialization Agreement. In consideration for Accentia entering into this Royalty Agreement, the Company agreed
to issue to Accentia 5 million new shares of the Companys common stock with a fair value of $4.8 million on the date of modification. No royalty expense relating to the Royalty Agreement was incurred during the six months ended
March 31, 2007. A charge to the Company of $4.8 million was recorded in operating expense and is included in loss on restructuring related party royalty agreement.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



8. Related Party Transactions (continued):



| |  |  | In order to consummate the foregoing transactions, the Company and Accentia were required to obtain the consent of Accentias senior lender, Laurus Master
Fund, Ltd. (Laurus), under Accentias loan agreement with Laurus. In consideration for providing such consent, the Company and Accentia entered into an agreement with Laurus pursuant to which Laurus consented to the above-described
transactions and certain other transactions, and Accentia issued to Laurus a warrant to purchase 10 million outstanding shares of the Companys common stock owned by Accentia at an exercise price of $.01 per share. The warrant expires in
October 2012. The $8.8 million fair value of the Accentia warrant, which was granted for the benefit of the Company, has been recorded as a capital contribution in the statement of operations in the Companys consolidated financial statements
for the six months ended March 31, 2007. A portion of the warrants cost was also allocated to a provision in the consent whereby Accentia was allowed to increase its inter-company loan with Biovest to a total of 9.6 million in order
to facilitate the New Markets Tax Credit financing transaction (see Note 14). This allocation has been recorded as a financing fee in the statement of operations for the six months ended March 31, 2007. The $8.8 million charge was allocated as
follows in the statement of operations:
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

9. Income taxes:

No provision for income taxes has been recorded for the six months ended March 31, 2007 and 2006 due to the losses incurred during the periods. At March 31, 2007, the Company has net operating loss carry forwards of approximately
$50.6 million available to offset future taxable income, which will begin to expire in 2020.

Deferred tax assets are reduced by a valuation allowance if,
based on the weight of the available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. The Company has recorded a deferred tax asset valuation allowance of
approximately $ 25.0 million, which fully offsets all deferred tax assets.



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



10. Stock based compensation:

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free
interest rate. Expected volatilities are based on historical volatility of the Companys stock and other factors estimated over the expected term of the options. The expected term of options granted is derived using the simplified
method which computes expected term as the average of the sum of the vesting term plus the contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term.

Common stock options exercised and outstanding during the six months ended March 31, 2007 are as follows:

Employee Stock Options:



|                                  |  |           |   |  |                       |      |                      |      |                          |   |       
|--------------------------------- |  | --------- | - |  | --------------------- | ---- | -------------------- | ---- | ------------------------ | - | ------
|                                  |  | Shares    |   |  | WeightedAverage Price |      | WeightedAverage Term |      | AggregateIntrinsic Value
|Outstanding at September 30, 2006 |  | 6,366,141 |   |  | $                     | 0.73 |                      |      |                          |   |       
|Granted                           |  | 2,901,382 |   |  | $                     | 0.74 |                      |      |                          |   |       
|Exercised                         |  | (15,000   | ) |  | $                     | 0.50 |                      |      |                          |   |       
|Canceled                          |  | (222,621  | ) |  | $                     | 0.86 |                      |      |                          |   |       
|                                  |  |           |   |  |                       |      |                      |      |                          |   |       
|Outstanding at March 31, 2007     |  | 9,029,902 |   |  | $                     | 0.73 |                      | 7.71 |                          | $ | 24,020
|                                  |  |           |   |  |                       |      |                      |      |                          |   |       
|Exercisable at March 31, 2007     |  | 7,361,642 |   |  | $                     | 0.75 |                      | 7.45 |                          | $ | 22,813
|                                  |  |           |   |  |                       |      |                      |      |                          |   |       

Non-vested employee stock options:



|                                  |  |            |   |  |                                  |     
|--------------------------------- |  | ---------- | - |  | -------------------------------- | ----
|Non-vested Shares                 |  | Shares     |   |  | Weighted AvgGrant-DateFair Value
|Non-vested at September, 30, 2006 |  | 1,997,562  |   |  | $                                | 0.48
|Granted                           |  | 704,167    |   |  |                                  | 0.32
|Vested                            |  | (1,016,247 | ) |  |                                  | 0.48
|Canceled                          |  | (17,222    | ) |  |                                  | 0.58
|                                  |  |            |   |  |                                  |     
|Non-vested at December 31, 2006   |  | 1,668,260  |   |  | $                                | 0.42
|                                  |  |            |   |  |                                  |     

Common stock warrants issued and exercisable are as follows:



|                                  |  |            |   |  |                       |     
|--------------------------------- |  | ---------- | - |  | --------------------- | ----
|Warrants                          |  | Shares     |   |  | WeightedAverage Price
|Outstanding at September 30, 2006 |  | 17,298,126 |   |  | $                     | 0.20
|Issued                            |  | 4,182,269  |   |  |                       | 1.10
|Exercised                         |  | (5,334     | ) |  |                       | 0.38
|Canceled                          |  | (100,346   | ) |  |                       | 3.74
|                                  |  |            |   |  |                       |     
|Outstanding at March 31, 2007     |  | 21,374,715 |   |  |                       | 0.36
|                                  |  |            |   |  |                       |     
|Exercisable at March 31, 2007     |  | 19,144,715 |   |  | $                     | 0.26
|                                  |  |            |   |  |                       |     



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



11. Derivative liability:

The changes in the derivative liability are as follows:



|                                                                                |  |   |        
|------------------------------------------------------------------------------- |  | - | -------
|Balance, September 30, 2006                                                     |  | $ | 236,000
|                                                                                | 
|Allocation of Laurus debt for New Market Tax Credit Transaction, December, 2006 |  |   | 131,000
|Loss on derivative                                                              |  |   | 59,000 
|                                                                                |  |   |        
|Balance, March 31, 2007                                                         |  | $ | 426,000
|                                                                                |  |   |        

12. Segment information:

The Company operates in three identifiable industry segments. The Companys Cell Culture products and services is engaged in the production and contract manufacturing of biologic drugs and cell production for
research institutions worldwide. The Instruments and Disposables segment is engaged in the development, manufacture and marketing of patented cell culture systems, equipment and consumable parts to pharmaceutical, diagnostic and biotechnology
companies, as well as leading research institutions worldwide. The Therapeutic Vaccine segment, which has generated no revenues to date, is focused on developing BiovaxID, as described earlier.

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



|                            |  |                             |   |  |                           |   |  |           |   |  |           |  
|--------------------------- |  | --------------------------- | - |  | ------------------------- | - |  | --------- | - |  | --------- | -
|                            |  | Three Months EndedMarch 31, |   |  | Six Months EndedMarch 31, |  
|                            |  | 2007                        |   |  | 2006                      |   |  | 2007      |   |  | 2006      |  
|Revenues                    |  |                             |   |  |                           |   |  |           |   |  |           |  
|Cell Culture Services       |  | 875,000                     |   |  | 583,000                   |   |  | 1,404,000 |   |  | 1,217,000 |  
|Instruments and Disposables |  | 677,000                     |   |  | 1,706,000                 |   |  | 1,475,000 |   |  | 2,157,000 |  
|                            |  |                             |   |  |                           |   |  |           |   |  |           |  
|Total Revenues              |  | 1,552,000                   |   |  | 2,289,000                 |   |  | 2,879,000 |   |  | 3,374,000 |  
|                            |  |                             |   |  |                           |   |  |           |   |  |           |  
|                            |  |                             |   | 
|Cost of Sales               |  |                             |   |  |                           |   |  |           |   |  |           |  
|Cell Culture Services       |  | 395,000                     |   |  | 503,000                   |   |  | 763,000   |   |  | 891,000   |  
|Instruments and Disposables |  | 456,000                     |   |  | 732,000                   |   |  | 855,000   |   |  | 947,000   |  
|                            |  |                             |   |  |                           |   |  |           |   |  |           |  
|Total Cost of Sales         |  | 851,000                     |   |  | 1,235,000                 |   |  | 1,618,000 |   |  | 1,838,000 |  
|                            |  |                             |   |  |                           |   |  |           |   |  |           |  
|                            |  |                             |   | 
|Gross Margin ($)            |  | 701,000                     |   |  | 1,054,000                 |   |  | 1,261,000 |   |  | 1,536,000 |  
|Gross Margin (%)            |  | 45                          | % |  | 46                        | % |  | 44        | % |  | 46        | %

13. Commitments and contingencies:

Legal proceedings:

The Company is not a party to any material legal proceedings, and management is not aware of any
threatened legal proceedings, that could cause a material adverse impact on the Companys business, assets, or results of operations. However, from time to time the Company is subject to various legal proceedings in the normal course of
business, some of which is covered by insurance.



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



13. Commitments and Contingies ( continued ):

Facility lease:

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

14. New Market Tax Credit Transactions:

On December 8, 2006, the Company through its wholly owned subsidiary, AutovaxID, Inc. (AutovaxID) closed a financing transaction (the
Transaction) that was structured in an effort to obtain certain perceived advantages and enhancements from the New Markets Tax Credit 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. AutovaxID is presently located in a qualifying census tract, and the New Plant (as defined below)
will be located in a qualifying census tract.

In the Transaction, AutovaxID entered into a QLICI Loan Agreement where St. Louis New Markets Tax Credit
Fund-II, LLC (the CDE) made a loan to AutovaxID, evidenced by a Subordinated Promissory Note dated as of December 8, 2006, in the principal amount of $7,700,000 (CDE Loan). The CDE Loan has a maturity date of
December 8, 2036 and is described in more detail below. The following parties were involved in the Transaction: AutovaxID, Accentia Biopharmaceuticals, Inc., Biovests majority shareholder (Accentia), Biolender II, LLC
(Biolender II), the CDE, St. Louis Development Corporation (SLDC), AutovaxID Investment LLC (Leverage Fund), U.S. Bancorp Community Investment Corporation (USBCIC) and Laurus Master Fund, Ltd.
(Laurus).

Under a License and Asset Purchase Agreement dated as of December 8, 2006, Biovest granted a nonexclusive license to the
intellectual property enabling AutovaxID to manufacture and sell automated cell culture instruments in the United States, Canada and Mexico (the License), which license will become exclusive upon the occupancy by AutovaxID of a space
located at 1031 Macklind Avenue, St. Louis, Missouri (the New Plant). Biovest also agreed to sell AutovaxID certain equipment (the Equipment) upon the occupancy by AutovaxID of the New Plant. AutovaxID was asked to use its
best efforts to occupy the New Plant by March 31, 2007, and must occupy the new plant by June 15, 2007. Although the Company did not complete renovations by March 31, 2007, the construction is on track to make the required deadline.
As full purchase price for the License and related business opportunity, AutovaxID paid Biovest $5.6 million. Upon the attainment of occupancy of the New Plant, AutovaxID will pay Biovest fair market value for the Equipment, which is estimated to be
$0.9 million.

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

On
December 8, 2006, Accentia loaned to Biovest $3.1 million pursuant to a Secured Promissory Note (the Accentia Note). Under the terms of the Accentia Note, interest shall accrue at a rate equal to the prime rate, payable upon demand
of Accentia. Biovest shall pay principal and interest as follows: (a) $1.1 million was paid to Accentia upon the closing of the Transaction and (b) the remaining $2.0 million of principal and all accrued and unpaid interest shall be paid
by Biovest upon demand by Accentia. In contemplation of the Transaction, Biovest formed Biolender II, LLC as a Delaware limited liability company. On December 8, 2006, $2.5 million was released from the Restricted Account created under the
Laurus Note, which together with the amount loaned to Biovest under the Accentia Note funded the purchase of a 100% equity interest in Biolender II for the benefit of Biovest. The entire equity interest in Biolender II owned by Biovest has been
pledged to Laurus as collateral to secure the Laurus Note.



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



14. New Market Tax Credit Transactions ( continued ):

Upon the completion of the funding of Biolender II by Biovest and receipt of $2.4 million from USBCIC via an equity investment in the Leverage Fund, Biolender II and the
Leverage Fund entered into a Loan and Security Agreement pursuant to which Biolender II made a loan to the Leverage Fund in the principal amount of $5.6 million (the Leverage Loan), evidenced by a promissory note dated as of
December 8, 2006 payable from the Leverage Fund to Biolender II (the Leverage Note). The Leverage Note becomes due on December 10, 2013.

Interest on the Leverage Loan accrues on the outstanding principal amount of the Leverage Loan at the rate of 8.00% per annum, non-compounding, commencing on December 8, 2006 until May 9, 2014; and shall be payable in arrears
on an annual basis commencing on the first business day after December 31, 2006. Any remaining accrued and unpaid interest shall be payable in one installment on the maturity date. All interest on the Leverage Loan shall accrue based on the
actual number of days elapsed and calculated based on a year of three hundred and sixty (360) days. The outstanding principal amount on the Leverage Loan is due on maturity in cash.

The Leverage Fund then contributed $8.0 million equity to the CDE (the QEI Contribution), which equity is expected to constitute 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, and the rules and regulations promulgated thereunder (collectively, the Code and the program the NMTC Program) and
administered by the Community Development Financial Institutions Fund of the United States Treasury Department (CDFI Fund). All of Leverage Funds interest in the CDE has been pledged to Biolender II as collateral for the Leverage
Note. The QEI Contribution resulted in $3.12 million of tax credits allocated to USBIC.

The proceeds of the QEI Contribution were used by the CDE to fund
the CDE Loan, which is expected to constitute a qualified low-income community investment (QLICI) under the NMTC Program. AutovaxIDs business is and will be conducted within a United States population census tract which
constitutes a Low-Income Community under the NMTC Program. As a condition of making the equity contribution to the Leverage Fund, USBCIC required AutovaxID to indemnify it under a Tax Credit and Reimbursement and Indemnity Agreement against any loss
of the tax credits as a result of the CDE Loan to constitute a QLICI and certain other conditions generally known as a recapture event.

The following
describes certain material terms of the CDE Loan and transactional warrants related to the Transaction:



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



| |  | The CDE Loan is secured by a second lien on all assets of AutovaxID for the benefit of the CDE pursuant to a Second-Lien Security Agreement between AutovaxID and
the CDE dated as of December8, 2006. Laurus has a senior lien on the assets of AutovaxID through the security agreement from Biovest to Laurus, which AutovaxID joined by way of a Joinder Agreement.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The CDE Loan shall be due and payable by AutovaxID in full on the maturity date of the CDE Loan. However, if the CDE exercises its call right pursuant to the CDE
Loan, then the CDE Loan becomes due and payable 30 days after the date on which the CDE delivers notice of said exercise. The call requires and amount of $5.7 million to be paid, in full satisfaction of the principal on the CDE Loan, together with
all accrued but unpaid interest.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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BIOVEST INTERNATIONAL, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



14. New Market Tax Credit Transactions ( continued ):



| |  | AutovaxID has the right to prepay the CDE Loan at any time, provided that, if it prepays the CDE Loan on or before May 8, 2014, (i) it prepays the entire
CDE Loan amount, (ii) the CDE consents to such prepayment and USBCIC and the managing member of the CDE agree on the reinvestment of such proceeds in an alternative investment that would qualify as a QLICI and (iii) AutovaxID or the
Individual Guarantors (as defined below) under the Tax Credit and Reimbursement and Indemnity Agreement pay to USBCIC the recapture amount so specified in such agreement.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  | Under a Put Option Agreement, starting on December 9, 2013, USBCIC will have the right to require Biolender II to purchase the equity interest of the Leverage
Fund during a three month exercise period. Biolender II shall have the obligation to acquire the members interest in the Leverage Fund under this Put Option Agreement for the payment to USBCIC for $0.1 million. Furthermore, under a Purchase
Option Agreement, for a three month period after the expiration of the put option and to the extent that the put option was not exercised, Biolender II will have to option to purchase USBCICs equity interests in the Leverage Fund based on the
fair market value of the equity interests at that time.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15. Variable Interest Entities:

Accounting for the NMTC financing arrangement:

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

The Company concluded that the Fund and the CDE met the definition of variable interest entity. However, for the Company to be required to apply the provisions of the
Interpretation, it must have a variable interest in the entity. Variable interests in a variable interest entity are contractual, ownership or other money interests in an entity that change with changes in the value of the net assets of the entity.
The following table illustrates the variable interests have been identified in each of the entities considered by the Company and the related holder:



|                                  |  |                                                                                                            |  |                                               
|--------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|Variable Interest Holder          |  | Variable Interests Fund                                                                                    |  | Variable Interests CDE                        
|Biovest and its Related Parties   |  | Senior beneficial interest Guaranty Agreement
Indemnification Agreement Put (VIE Equity) Call (VIE Equity) |  | Senior beneficial interest Guarantee
Agreement
|                                  |  |                                                                                                           
|Fund                              |  |                                                                                                            |  | VIE Equity (99.9%)                            
|                                  |  |                                                                                                           
|US Bancorp                        |  | VIE Equity (99.9%)                                                                                         |  | Tax Credit Rights                             
|                                  |  |                                                                                                           
|Autovax Investment LLC            |  | VIE Equity (0.01%)                                                                                         |  |                                               
|                                  |  |                                                                                                           
|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 agreement, indemnification and put feature, the preponderance of which limit the equity investors risk of loss on the venture. In evaluating both
qualitative and quantitative considerations, the Company has concluded that its variable interests in the entity absorb most of the entities losses and should, therefore, consolidate the entities under the scope of FIN46.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2007 AND 2006

(UNAUDITED)



15. Variable Interest Entities (continued):

Assets of $8.0 million and liabilities of $7.7 million of the variable interest entities identified above, are limited to the instruments referred to in the description of the NMTC financing arrangement above. In
accordance with consolidation principles, these assets and liabilities are eliminated in consolidation leaving the non-controlling interests of US Bancorp and St. Louis Development Corporation reflected on the Companys March 31, 2007
condensed consolidated balance sheet as non controlling interests in variable interest entities. The warrants issued to the guarantors were expensed based upon their fair values. All intercompany accounts will continue to be eliminated so long as
(i) the entities meet the definition of variable interest entities and (ii) the Company is the primary beneficiary.



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

Overview

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

The DMC met on January 16, 2007 to review the studys data for safety and efficacy. The study report reviewed during this meeting was the same data set reviewed previously
by the NCI DSMB in the spring of 2006. It was the unanimous opinion of the committee that the current BiovaxID clinical trial study, with PACE as the chemotherapy in Segment A, should continue and enrollment into this study should proceed as quickly
as possible. The Company plans to continue the trial as recommended and has expanded the number of sites participating in the BiovaxID clinical trial in order to accelerate patient accrual.

The DMC will continue to meet on a regular basis to monitor the data to ensure the safety of the subjects participating in this clinical trial. Their next regularly
scheduled meeting is planned for June 2007, at which point they will be provided with an updated data set for review. The Company has recently augmented its plans with respect to its Phase 3 clinical trials and planned commercialization
expenditures. See footnote 3 Liquidity and management plans for additional discussion of the ongoing clinical trial.

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 have developed an automated cell production instrument, AutovaxID, which we plan to use in the production of BiovaxID vaccines if approved and to market it on a commercial basis.

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

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make significant
estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. The Company evaluates its estimates, including those related to bad debts, inventories,
intangible assets, contingencies and litigation on an ongoing basis. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



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

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

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

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

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

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

The Company accounts for stock-based compensation based on the Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), Share-Based Payment (SFAS 123R) which requires expensing of stock options and other share-based payments based on the fair value of each
option awarded. The fair value of each option is estimated on the date of grant using the Black-Scholes valuation model. This model requires management to estimate the expected volatility, expected dividends, and expected term as inputs to the
valuation model.

The consolidated financial statements represent the consolidation of wholly-owned companies and interests in joint ventures where the
Company has a controlling financial interest or has been determined to be the primary beneficiary under Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46).
All significant inter-company balances and transactions have been eliminated.

Results of Operations

Revenues. Total revenues for the three and six months ended March 31, 2007 were $1.6 million and $2.9 million respectively, which represents a
decrease of $0.7 million or 48% over the three months ended March 31, 2006, and a decrease of $0.5 million or 17% over the six months ended March 31, 2006. Both the three and six months ended March 31, 2006 included the sale of three
Xcellerator units, the largest model in our line of cell culture instrumentation. There were no comparable sales of this instrument in the same periods ending March 31, 2007. Sales of our other instrumentation were similar year over year.

Gross Margin. The overall gross margin as a percentage of sales for the three months ended March 31, 2007 decreased slightly
from 46% to 45% compared to the same period in fiscal 2006. The gross margin for the six months ended March 31, 2007 also decreased from 46% to 44%. The differences in Xcellerator sales discussed above resulted in the minor decline in margin.

Operating Expenses. Research and development expenses increased by $0.6 million or 22% for the three months ended March 31, 2007 and
increased $0.7 million or 14% for the six months ended March 31, 2007 compared to the same periods in 2006. This increase relates to the companys expansion of the number of sites participating in the BiovaxID clinical trial.



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General and administrative expenses increased $0.8 million and $1.4 million for the three and six months ended
March 31, 2007 compared with the three and six months ended March 31, 2006. This increase is attributed primarily to the accrual of a discretionary bonus for full time employees, an overall increase in staffing levels, and an increase in
professional fees rendered in connection with the New Markets Tax Credit Transaction discussed in footnote 14 to the Financial Statements above.

As
discussed in Note 8 to the financial statements, $3.8 million was charged as an operating expense related to Laurus consent to the Company purchase of Accentias interest in Biolender, and $6.6 million was charged as an operating expense
in connection with the restructuring of the Companys royalty agreement with Accentia.

Other Income (Expense). As discussed in Note 8
to the financial statements, other expense for the first three months of fiscal 2007 includes a $6.6 million loss incurred upon termination of the anti-dilution agreement with Accentia and a $1.2 million charge related to obtaining a consent from
one of Accentias lenders to permit additional advances to the Company by Accentia. Other expense for the three and six months ended March 31, 2007 and 2006 also includes contractual interest charges and amortization of discounts regarding
the Laurus Financing, interest on our demand notes to Accentia, interest on other long-term debt, and short-term loans from affiliates. Total interest expense for the three months ended March 31, 2007 and 2006 was $1.6 million and $0.2 million
respectively. Total interest expense for the six months ended March 31, 2007 and 2006 was $3.6 million and $0.3 million respectively. In addition, other expense for the first six months of fiscal 2007 includes a $59,000 loss on derivative
liabilities. As the derivative did not exist during the first six months of fiscal 2006, there is no comparable loss.

Liquidity and Capital Resources

The Company has historically had significant losses from operations and these losses continued during the three months ended March 31, 2007
resulting in a net operating cash flow deficit of $7.3 million. At March 31, 2007 the Company had an accumulated deficit of approximately $81.7 million and working capital deficit of approximately $15.9 million. . At March 31, 2007, the
Company had $2.0 in cash of which the Company had allocated $1.4 to the establishment and start-up of its new facility dedicated to the manufacture of AutovaxID instruments. The Company has been meeting its cash requirements through proceeds from
its cell culture and instrument manufacturing activities, the use of cash on hand, trade vendor credit and short-term borrowings (primarily from affiliates), as well as the sale of stock to and inter-company demand notes from Accentia. Since 2003,
Accentia has been a primary source of financing for the Company; however, the Company has been informed by Accentia that provisions of certain of its loan and debenture financing agreements preclude Accentia from making any additional direct cash
contributions to the Company. Accordingly, the Companys ability to continue present operations and to continue its ongoing clinical trial is dependent upon the Companys ability to obtain significant external funding in the near term from
sources other than Accentia. The Companys auditors issued a going concern uncertainty on the financial statements for the year ended September 30, 2006, citing significant losses and working capital deficits at that date,
which raised substantial doubt about the Companys ability to continue as a going concern. The need for funds is expected to grow as we continue our trials.

During the three and six months ended March 31, 2007, we received net advances of $0.4 million and $4.0 million respectively, from Accentia. The Companys total net advances in excess of the $20 million investment agreement
aggregated $9.2 million as of March 31, 2007, consisting of cash loans, payments by Accentia directly to third parties and allocated inter-company expenses, accrued interest, and amounts owed in connection with the conversion of notes
outstanding at the time of Accentias initial investment in June 2003. The $9.2 million is evidenced by three secured promissory demand notes.

New
Market Tax Credits

On December 8, 2006, we, through our wholly owned subsidiary, AutovaxID, Inc. (AutovaxID) closed a financing
transaction (the Transaction) that was structured in an effort to obtain certain perceived advantages and enhancements from the New Markets Tax Credit 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. AutovaxID is presently located in a qualifying census tract, and our facility as
discussed below is located in a qualifying census tract.

In the Transaction, AutovaxID entered into a QLICI Loan Agreement where St. Louis New Markets Tax
Credit Fund-II, LLC (the CDE) made a loan to AutovaxID, evidenced by a Subordinated Promissory Note dated as of December 8, 2006, in the principal amount of $7.7 million (CDE Loan). The CDE Loan has a maturity date of
December 8, 2036 and is described in more detail below. The following parties were involved in the Transaction: AutovaxID, Accentia Biopharmaceuticals, Inc., Biovests majority



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shareholder (Accentia), Biolender II, LLC (Biolender II), the CDE, St. Louis Development Corporation (SLDC), AutovaxID
Investment LLC (Leverage Fund), U.S. Bancorp Community Investment Corporation (USBCIC) and Laurus Master Fund, Ltd. (Laurus).

Under a License and Asset Purchase Agreement dated as of December 8, 2006, Biovest granted a nonexclusive license to the intellectual property enabling AutovaxID to manufacture and sell automated cell culture instruments in the United
States, Canada and Mexico (the License), which license will become exclusive upon the occupancy by AutovaxID of a new facility located at 1031 Macklind Avenue, St. Louis, Missouri (the New Plant). Biovest also agreed to sell
AutovaxID certain equipment (the Equipment) to AutovaxID upon the occupancy by AutovaxID of the New Plant. AutovaxID must occupy the new plant by June 15, 2007. As full purchase price for the License and related business
opportunity, AutovaxID paid Biovest $5.6 million. Upon the attainment of occupancy of the New Plant, AutovaxID will pay Biovest fair market value for the Equipment, which is estimated to be $0.9 million.

Previously, on March 31, 2006 in contemplation of the Transaction and other prior New Markets Tax Credit financings and other financings, Biovest closed a financing
transaction with Laurus pursuant to which Laurus purchased from Biovest a secured promissory note in the principal amount of $7.8 million (the Laurus Note). Under the terms of the Laurus Note, $7.5 million of the principal amount was
deposited into a restricted bank account of Biovest (the Restricted Account) pursuant to a restricted account agreement between Biovest and Laurus. Accentia, Analytica International, Inc. (formerly The Analytica Group, Inc.) and Laurus
also entered into an Amended and Restated Stock Pledge Agreement pledging Accentias shares of TEAMM Pharmaceuticals, Inc., Analytica International, Inc., Biovest and others (including AutovaxID and Biolender II, who were added as obligors by
way of joinder) to secure the obligations owed to Laurus as a result of the Laurus Note and Transaction.

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

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

Upon the completion of the funding of
Biolender II by Biovest and receipt of $2.4 million from USBCIC via an equity investment in the Leverage Fund, Biolender II and the Leverage Fund entered into a Loan and Security Agreement pursuant to which Biolender II made a loan to the Leverage
Fund in the principal amount of $5.6 million (the Leverage Loan), evidenced by a promissory note dated as of December 8, 2006 payable from the Leverage Fund to Biolender II (the Leverage Note). The Leverage Note becomes
due on December 10, 2013.

Interest on the Leverage Loan accrues on the outstanding principal amount of the Leverage Loan at the rate of
8.00% per annum, non-compounding, commencing on December 8, 2006 until May 9, 2014; and is payable in arrears on an annual basis commencing on the first business day after December 31, 2006. Any remaining accrued and unpaid
interest is payable in one installment on the maturity date. All interest on the Leverage Loan shall accrue based on the actual number of days elapsed and calculated based on a year of three hundred and sixty (360) days. The outstanding
principal amount on the Leverage Loan is due on maturity in cash.

The Leverage Fund then contributed $8.0 million equity to the CDE (the QEI
Contribution), which equity is expected to constitute 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, and the
rules and regulations promulgated thereunder (collectively, the Code and the program the NMTC Program) and administered by the Community Development Financial Institutions Fund of the United States Treasury Department
(CDFI Fund). All of Leverage Funds interest in the CDE has been pledged to Biolender II as collateral for the Leverage Note. The QEI Contribution resulted in an allocation of $3.1 million tax credits to USBCIC

The proceeds of the QEI Contribution were used by the CDE to fund the CDE Loan, which is expected to constitute a qualified low-income community investment
(QLICI) under the NMTC Program. AutovaxIDs business is and will be conducted within a United States population census tract which constitutes a Low-Income Community under the NMTC Program. As a condition of



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making the equity contribution to the Leverage Fund, USBCIC required AutovaxID to indemnify it under a Tax Credit and Reimbursement and Indemnity Agreement
against any loss of the tax credits as a result of the CDE Loan to constitute a QLICI and certain other conditions generally known as a recapture event.

The following describes certain material terms of the CDE Loan and transactional warrants related to the Transaction:



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



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



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



| |  |  | AutovaxID has the right to prepay the CDE Loan at any time, provided that, if it prepays the CDE Loan on or before May 8, 2014, (i) it prepays the entire
CDE Loan amount, (ii) CDE consents to such prepayment and USBCIC and the managing member of the CDE agree on the reinvestment of such proceeds in an alternative investment that would qualify as a QLICI and (iii) AutovaxID or the Individual
Guarantors (as defined below) under the Tax Credit and Reimbursement and Indemnity Agreement pay to USBCIC the recapture amount so specified is such agreement.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | Under a Put Option Agreement, starting on December 9, 2013, USBCIC will have the right to require Biolender II to purchase the equity interests of the Leverage
Fund during a three month exercise period. Biolender II shall have the obligation to acquire the members interest in the Leverage Fund under this Put Option Agreement for the payment to USBCIC of $0.1 million. Furthermore, under a Purchase
Option Agreement, for a three month period after the expiration of the put option and to the extent that the put option was not exercised, Biolender II will have the option to purchase USBCICs equity interests in the Leverage Fund based on the
fair market value of the equity interests at that time.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Notes Payable

On January 16, 2007, the Company closed an amended and restated loan transaction (Note 1) with Pulaski Bank and Trust Company of St. Louis, MO (Pulaski), which amended the Loan Agreement
dated September 5, 2006 pursuant to which Pulaski agreed to loan $1 million to the Company pursuant to an unsecured Promissory Note. The Company also closed on a second loan transaction with Pulaski Bank on March 22, 2007 (Note
2), pursuant to which Pulaski agreed to loan an additional $0.75 million to the Company pursuant to an unsecured Promissory Note. The balance of both notes included in the accompanying 2007 consolidated financial statements includes the
principal of $1.75 million plus accrued interest of approximately $7,000.

Note 1 matures on July 5, 2007, and can be prepaid by the Company at any
time without penalty. The note bears interest at the prime rate minus .05% (7.75% per annum at March 31, 2007), requiring monthly payments of interest only commencing February 2007. The note is an unsecured obligation of the Company and is
subordinated to the Companys outstanding loan to Laurus Master Fund, Ltd. The notes are guaranteed by entities and individuals affiliated with the Company or Accentia, the majority stockholder of the Company. The Company has entered into
Indemnification Agreements with each of the guarantors.

In conjunction with the issuance of these notes payable the Company issued to the guarantors
warrants to purchase an aggregate total of 1,388,636 shares of the Companys Common Stock, par value $0.01 per share, at an exercise price of $1.10 per share (the Warrants). The Warrants will expire on January 15, 2012. Under
the terms of the Warrants, the guarantors shall have piggy-back registration rights for the shares underlying the Warrants.



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Note 2 matures on May 21, 2007. The note bears interest at the prime rate minus .05% (7.75% per annum as of
March 31, 2007), with interest only payment due monthly. The note is an unsecured obligation of the Company and is subordinated to the Companys outstanding loan to Laurus Master Fund, Ltd. The note is guaranteed by entities and
individuals affiliated with the Company or Accentia, the majority stockholder of the Company. The Company has entered into Indemnification Agreements with each of the guarantors. The Company issued to the guarantors warrants to purchase an aggregate
total of 406,817 shares of the Companys Common Stock, par value $0.01 per share, at an exercise price of $1.10 per share. These warrants will expire on March 21, 2012. Under the terms of the warrants, the guarantors shall have piggy-back
registration rights for the shares underlying the warrants.

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

As previously disclosed in the section describing New Market Tax Credits above, the Company has a secured promissory note in the principal amount of $7,799,000 (the Note) to the Laurus Master Fund, Ltd. (Laurus).
Pursuant to the original terms of the Note, the Company was required to make certain principal and interest payments commencing in calendar 2007. We did not commence making such payments when originally due and reached an understanding that such
payments would not commence while the Company sought additional financing. This understanding was formalized into a letter agreement dated March 21, 2007 (the Letter Agreement). the Company closed a short-term borrowing of $750,000 from
Pulaski Bank and this Letter Agreement became effective on April 17, 2007. In addition to formalizing and continuing Laurus forbearance, the Letter Agreement rescheduled future payments due from the Company to Laurus under the Note. Under the
Letter Agreement past due and ongoing principal payments on the Note are deferred until August 1, 2007, when adjusted monthly principal payments of $0.3 million per month will commence. As consideration for the forbearance the Company granted to
Laurus a non-cancelable royalty equal to three percent 3% of world-wide net sales of AutovaxID instruments for a period of five years commencing on the earlier of May 31, 2007 or the completion of a long term financing by the Company. Under the
terms of the royalty agreement our royalty payments to Laurus are required to aggregate a minimum of $8.0 million with $0.5 million of the minimum royalty being payable on December 31, 2007 and the balance (if any), less actual royalties paid, being
due at the end of the five year royalty term. In addition, upon satisfaction of certain conditions of the Letter Agreement, Laurus consented to the Company seeking and, if available, entering into bridge loans in an aggregate amount of up to $7.0
million.

Operating Capital and Capital Expenditure Requirements:

Our ability to continue our present operations and meet our obligations for vaccine development and commercialize our automated cell culture instrument is dependent upon our ability to continue obtaining significant
external funding. Our independent registered accountants have expressed substantial doubt as to our ability to continue as a going concern for the year ended September 30, 2006, citing significant losses and working capital deficits. See Note 3
in the notes to the financial statements. As previously discussed Accentia has advanced all payments required under its investment agreement obligation of $20 million. Additionally, Accentia has loaned the Company a net $9.2 million through
March 31, 2007, including the inter-company demand loans discussed above. Accentia has informed us that terms of certain existing financing agreements prohibit any further loans or investments by Accentia in the Company. Additional sources of
funding have not been established; however, additional financing is currently being sought by the Company from a number of sources other than Accentia, including the sale of equity or debt securities, strategic collaborations, recognized research
funding programs, as well as domestic and/or foreign licensing of our vaccine. Management is currently in the process of exploring various financing alternatives, and has hired an investment banking firm to assist in these efforts. There can be no
assurance that we will be successful in securing such financing at acceptable terms, if at all. If adequate funds are not available from the foregoing sources, or if the Company determines it to otherwise be in the Companys best interest, the
Company may consider additional strategic financing options, including sales of assets or business units that are non-essential to the ongoing development or future commercialization of BiovaxID and AutovaxID, or the Company may be required to
delay, reduce the scope of, or eliminate one or more of its research or development programs or postpone or reduce some or all of its commercialization efforts.

Fluctuations in Operating Results

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

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

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



|                                                |  |            
|----------------------------------------------- |  | -----------
|Shares Issued and Outstanding at March 31, 2007 |  | 94,473,067 
|Options                                         |  | 9,029,902  
|Warrants                                        |  | 21,374,715 
|Convertible Notes                               |  | 47,817     
|                                                |  |            
|Total                                           |  | 124,925,501
|                                                |  |            



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

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

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



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



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



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



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



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



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



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

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



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

An evaluation was performed under the supervision and with the participation of our
management, including the Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2007, and for the period covered by this
report. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures are effective as of March 31, 2007, and for the period covered by this report, to ensure that information
required to be disclosed in the reports that Biovest files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules
and forms. There have been no significant changes in our internal control over financial reporting or in other factors in the first six months of fiscal 2007 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.



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##### Table of Contents

PART II.
OTHER INFORMATION



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

From time to time we are subject to various legal proceedings in the normal course of
business, some of which are covered by insurance. Management believes that these proceedings will not have a material adverse effect on our business or on the financial statements.



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

An investment in our securities involves a high degree of risk. Except asset forth herein, there
have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-KSB for the year ended September 30, 2006 filed on December 29, 2006. You should consider carefully all of the material risks described
in such Annual Report of Form 10-KSB before making a decision to invest in our securities. If any of the events described therein occur, our business, financial conditions and results of operations may be materially adversely affected. In that
event, the trading price of our securities could decline, and you could lose all or part of your investment.

We will need substantial additional
financing but our access to capital funding is uncertain.

During prior years, we met our cash requirements through the use of cash on
hand, the sale of common stock, and short-term loans from affiliates. In 2003, we entered into an Investment Agreement with Accentia. The aggregate investment commitment received from Accentia was $20 million, which consisted of cash and a
combination of short and long-term notes. In August 2004, we entered into an Amendment to the Investment Agreement with Accentia (the Amendment). This Amendment provided that Accentia would use reasonable efforts (without altering the
terms of Promissory Note executed as part of the Investment Agreement) to advance funds under a Line of Credit Promissory Note and General Security Agreement. Amounts advanced under the Line of Credit Promissory Note were credited against
installments as they became due and payable under the outstanding Promissory Note. As of October 2005, Accentia had advanced all payments required under its investment agreement obligation of $20 million. Additionally, Accentia has loaned us or
otherwise paid on our behalf an additional $9.2 million through March 31, 2007, as represented by three secured promissory demand loans. Additionally, we have borrowed funds from third parties and have arranged for financing for our subsidiaries
Biovax and AutovaxID. Since much of this indebtedness is secured by all of our assets, including the assets of our subsidiaries, our creditors may be able to foreclose on our assets if we are unable to meet our obligations as they become due.

Our ability to continue present operations is dependent upon our ability to obtain significant external funding. We have received a report
from our independent registered public accounting firm on our consolidated financial statements for the fiscal years ended September 30, 2006 and 2005 in which our auditors have included explanatory paragraphs indicating that our significant net
losses and working capital deficiency cause substantial doubt about the Companys ability to continue as a going concern. As of March 31, 2007, Biovest had cash of $2.0 million, of which $1.4 million was set aside by us for anticipated start-up
expenses associated with our new AutovaxID facility. Under the terms of certain existing financing agreements, including a recent private placement of convertible notes in February 2007 by Accentia, Accentia is prohibited from providing any further
funding to the Company. Accordingly, we will need to raise substantial additional capital from sources other than Accentia in the very near future in order to continue the clinical trials for BiovaxID and continue our operations. The Company is
currently seeking additional financing 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 AutovaxID
instrument and our BiovaxID vaccine. The Companys management is currently in the process of exploring various financing alternatives, and has hired investment consultants to assist in these efforts. If the Company raises funds through the
issuance of equity securities, Accentias equity interest in the Company could be substantially diminished. We cannot be certain that additional funding will be available on acceptable terms or at all. If adequate funds are not available from
the foregoing sources, or if we determine it to otherwise be in our best interests, we may consider additional strategic financing options, including sales of assets or business units, 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 of our commercialization efforts.



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

Unregistered Sales of Equity Securities

None.

Options Exercised

In the six months ended March 31, 2007, 15,000 common stock options were
exercised.



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

None.



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

None.



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

None.



|I
TEM 6. | EXHIBITS
|-------- | --------

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



|               |  |                                                                                                                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                        
|10.1           |  | Agreement between American Defense International, Inc. and the Company dated February 8, 2007.                     
|               | 
|10.2           |  | Promissory Note between Pulaski Bank and the Company dated April 22, 2007.                                         
|               | 
|31.1           |  | Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 302 of Sarbanes  Oxley Act.
|               | 
|31.2           |  | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes  Oxley Act.                          
|               | 
|32.1           |  | Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 906 of Sarbanes  Oxley Act.
|               | 
|32.2           |  | Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes  Oxley Act                           



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##### Table of Contents

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: May 15, 2007 |  |  |  | /s/ Steven R. Arikian                                         
|                   |  |  |  | Steven R. Arikian, M.D.                                       
|                   |  |  |  | Chairman of the Board; Chief Executive Officer; Director      
|                   |  |  |  | (Principal Executive Officer)                                 
|                   |  | 
|Date: May 15, 2007 |  |  |  | /s/ James A. McNulty                                          
|                   |  |  |  | James A. McNulty, CPA                                         
|                   |  |  |  | Chief Financial Officer                                       
|                   |  |  |  | (Principal Financial Officer and Principal Accounting Officer)



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