##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the quarter ended March 31, 2008

OR



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

Commission File Number 000-51383





ACCENTIA BIOPHARMACEUTICALS,
INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 04-3639490                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                                   |  |           
|-------------------------------------------------- |  | ----------
|324 South Hyde Park Ave., Suite 350 Tampa, Florida |  | 33606     
|(Address of principal executive offices)           |  | (Zip Code)

(813) 864-2554

Registrants telephone number, including area code





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 $0.001
per share

(Title of class)





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, a non-accelerated filer or a smaller reporting company. See definitions
of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (Check one):

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

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, 2008, there were 45,233,019 shares of the registrants Common Stock outstanding.









---

##### Table of Contents

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, and similar expressions intended to identify forward-looking statements. 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-K for the fiscal year ended
September 30, 2007, 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.



---

##### Table of Contents

INDEX

ACCENTIA BIOPHARMACEUTICALS, INC.



|         |  |                                                                                                                        |  |     
|-------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                        |  | Page
|PART I.  |  | FINANCIAL INFORMATION                                                                                                  |  |     
|ITEM 1.  |  | Financial Statements                                                                                                   |  |     
|         |  | Condensed Consolidated Balance Sheets as of March 31, 2008 (unaudited) and September 30, 2007                          |  | 2   
|         |  | Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2008 and 2007 (unaudited) |  | 4   
|         |  | Condensed Consolidated Statement of Stockholders Deficit for the Six Months Ended March 31, 2008 (unaudited)          |  | 5   
|         |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2008 and 2007 (unaudited)           |  | 6   
|         |  | Notes to Condensed Consolidated Financial Statements                                                                   |  | 8   
|ITEM 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                  |  | 48  
|ITEM 3.  |  | Quantitative and Qualitative Disclosure About Market Risk                                                              |  | 69  
|ITEM 4.  |  | Controls and Procedures                                                                                                |  | 70  
|         |  |                                                                                                                       
|PART II. |  | OTHER INFORMATION                                                                                                      |  |     
|ITEM 1.  |  | Legal Proceedings                                                                                                      |  | 70  
|ITEM 1A. |  | Risk Factors                                                                                                           |  | 71  
|ITEM 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                            |  | 71  
|ITEM 3.  |  | Defaults Upon Senior Securities                                                                                        |  | 71  
|ITEM 4.  |  | Submission of Matters to a Vote of Security Holders                                                                    |  | 72  
|ITEM 5.  |  | Other Information                                                                                                      |  | 72  
|ITEM 6.  |  | Exhibits                                                                                                               |  | 72  



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                        |  |                           |            |                    |   |           
|------------------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | ------------------ | - | ----------
|                                                                                                        |  | March 31, 2008(Unaudited) |            | September 30, 2007
|ASSETS                                                                                                  |  |                           |            |                    |   |           
|Current assets:                                                                                         |  |                           |            |                    |   |           
|Cash and cash equivalents                                                                               |  | $                         | 1,517,229  |                    | $ | 1,623,140 
|Cash, restricted                                                                                        |  |                           | 872,832    |                    |   | 2,503,330 
|Accounts receivable, trade                                                                              |  |                           |            |                    |   |           
|Net of allowance for doubtful accounts of $237,995 at March 31, 2008 and $542,864 at September 30, 2007 |  |                           | 2,134,136  |                    |   | 3,637,633 
|Inventories                                                                                             |  |                           | 896,574    |                    |   | 1,497,584 
|Unbilled receivables                                                                                    |  |                           | 2,386,447  |                    |   | 1,806,584 
|Deferred finance costs                                                                                  |  |                           | 1,172,679  |                    |   | 1,196,000 
|Prepaid expenses and other current assets                                                               |  |                           | 1,166,819  |                    |   | 892,026   
|                                                                                                        |  |                           |            |                    |   |           
|Total current assets                                                                                    |  |                           | 10,146,716 |                    |   | 13,156,297
|                                                                                                        |  |                           |            |                    |   |           
|Goodwill                                                                                                |  |                           | 1,193,437  |                    |   | 1,193,437 
|Intangible assets                                                                                       |  |                           | 14,363,780 |                    |   | 14,716,072
|Furniture, equipment and leasehold improvements, net                                                    |  |                           | 1,446,807  |                    |   | 1,761,289 
|Deferred finance costs, less current portion                                                            |  |                           | 1,524,281  |                    |   | 1,763,815 
|Other assets                                                                                            |  |                           | 363,179    |                    |   | 455,597   
|                                                                                                        |  |                           |            |                    |   |           
|                                                                                                        |  | $                         | 29,038,200 |                    | $ | 33,046,507
|                                                                                                        |  |                           |            |                    |   |           

(Continued)



2



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(CONTINUED)



|                                                                                                                                                                                                          |  |                           |              |   |                    |   |              |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------------ | - | ------------------ | - | ------------ | -
|                                                                                                                                                                                                          |  | March 31, 2008(Unaudited) |              |   | September 30, 2007 |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                                                     |  |                           |              |   |                    |   |              |  
|Current liabilities:                                                                                                                                                                                      |  |                           |              |   |                    |   |              |  
|Current maturities of long-term debt (Note 9):                                                                                                                                                            |  |                           |              |   |                    |   |              |  
|Convertible debenture                                                                                                                                                                                     |  | $                         | 3,725,256    |   |                    | $ |             |  
|Hybrid financial instrument at fair value                                                                                                                                                                 |  |                           | 7,578,104    |   |                    |   | 7,662,925    |  
|Other long-term debt                                                                                                                                                                                      |  |                           | 10,661,679   |   |                    |   | 8,195,132    |  
|Lines of credit (Note 7):                                                                                                                                                                                 |  |                           |              |   |                    |   |              |  
|Related party                                                                                                                                                                                             |  |                           |             |   |                    |   | 1,705,000    |  
|Other                                                                                                                                                                                                     |  |                           | 11,147,790   |   |                    |   | 12,030,768   |  
|Accounts payable (including related party balances of $5,562,890 and $1,553,460 at March 31, 2008 and September 30, 2007,
respectively)                                                                   |  |                           | 9,723,963    |   |                    |   | 13,202,241   |  
|Accrued expenses (including related party balances of $275,000 and $169,658 at March 31,2008 and September 30, 2007 respectively)                                                                         |  |                           | 5,697,225    |   |                    |   | 6,750,086    |  
|Unearned revenues                                                                                                                                                                                         |  |                           | 1,569,224    |   |                    |   | 1,456,700    |  
|Dividends payable                                                                                                                                                                                         |  |                           | 479,452      |   |                    |   | 479,452      |  
|Notes payable (Note 8)                                                                                                                                                                                    |  |                           | 10,337,864   |   |                    |   | 2,399,851    |  
|Notes payable, related parties                                                                                                                                                                            |  |                           | 388,799      |   |                    |   | 168,412      |  
|Royalty liability (Note 10)                                                                                                                                                                               |  |                           | 35,217       |   |                    |   | 491,987      |  
|Customer deposits                                                                                                                                                                                         |  |                           | 285,344      |   |                    |   | 878,781      |  
|Derivative liabilities (Note 11)                                                                                                                                                                          |  |                           | 16,036,181   |   |                    |   | 10,814,252   |  
|                                                                                                                                                                                                          |  |                           |              |   |                    |   |              |  
|Total current liabilities                                                                                                                                                                                 |  |                           | 77,666,098   |   |                    |   | 66,235,587   |  
|Long-term debt, net of current maturities (Note 9):                                                                                                                                                       |  |                           |              |   |                    |   |              |  
|Convertible debenture                                                                                                                                                                                     |  |                           | 7,825,081    |   |                    |   |             |  
|Hybrid financial instrument at fair value                                                                                                                                                                 |  |                           | 4,282,998    |   |                    |   | 6,152,492    |  
|Other long-term debt                                                                                                                                                                                      |  |                           | 87,439       |   |                    |   | 13,877,455   |  
|Royalty liability, less current portion (Note 10)                                                                                                                                                         |  |                           | 4,834,193    |   |                    |   | 4,604,509    |  
|Other liabilities, related party                                                                                                                                                                          |  |                           | 2,261,641    |   |                    |   | 2,299,546    |  
|                                                                                                                                                                                                          |  |                           |              |   |                    |   |              |  
|Total liabilities                                                                                                                                                                                         |  |                           | 96,957,450   |   |                    |   | 93,169,589   |  
|                                                                                                                                                                                                          |  |                           |              |   |                    |   |              |  
|Non-controlling interest in variable interest entities (Note 19)                                                                                                                                          |  |                           | 4,743,326    |   |                    |   | 4,973,632    |  
|                                                                                                                                                                                                          |  |                           |              |   |                    |   |              |  
|Series A-1 convertible redeemable preferred stock, $1.00 par value; 8,950 shares authorized; 8,729 and -0- shares issued and outstanding at
March 31, 2008 and September 30, 2007, respectively (Note 14) |  |                           | 111,963      |   |                    |   |             |  
|                                                                                                                                                                                                          |  |                           |              |   |                    |   |              |  
|Commitments and contingencies (Note 18)                                                                                                                                                                   |  |                           |             |   |                    |   |             |  
|Stockholders deficit:                                                                                                                                                                                    |  |                           |              |   |                    |   |              |  
|Common Stock, $0.001 par value; 300,000,000 shares authorized; 44,501,407 and 39,588,900 shares issued and outstanding at March 31, 2008
and September 30, 2007, respectively                             |  |                           | 44,501       |   |                    |   | 39,589       |  
|Additional paid-in capital                                                                                                                                                                                |  |                           | 198,127,468  |   |                    |   | 172,449,173  |  
|Accumulated deficit                                                                                                                                                                                       |  |                           | (270,946,508 | ) |                    |   | (237,585,476 | )
|                                                                                                                                                                                                          |  |                           |              |   |                    |   |              |  
|Total stockholders deficit                                                                                                                                                                               |  |                           | (72,774,539  | ) |                    |   | (65,096,714  | )
|                                                                                                                                                                                                          |  |                           |              |   |                    |   |              |  
|                                                                                                                                                                                                          |  | $                         | 29,038,200   |   |                    | $ | 33,046,507   |  
|                                                                                                                                                                                                          |  |                           |              |   |                    |   |              |  

See notes to condensed consolidated financial statements



3



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|----------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------ | - | ----------- | -------------- |  | - | -------------- | - |  | - | ----------- | -
|                                                                                                |  | For the Three Months Ended |            |   | For the Six Months Ended |  
|                                                                                                |  | March 31, 2008             |            |   | March 31, 2007           |   |             | March 31, 2008 |  |   | March 31, 2007 |  
|Net Sales:                                                                                      |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Products                                                                                        |  | $                          | 1,100,187  |   |                          | $ | 1,565,866   |                |  | $ | 2,632,600      |   |  | $ | 4,501,882   |  
|Services                                                                                        |  |                            | 3,061,231  |   |                          |   | 2,991,918   |                |  |   | 5,864,883      |   |  |   | 5,937,645   |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Total net sales                                                                                 |  |                            | 4,161,418  |   |                          |   | 4,557,784   |                |  |   | 8,497,483      |   |  |   | 10,439,527  |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|                                                                                                |  |                            |            |  
|Cost of sales:                                                                                  |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Products                                                                                        |  |                            | 803,830    |   |                          |   | 569,281     |                |  |   | 1,726,707      |   |  |   | 1,404,021   |  
|Services                                                                                        |  |                            | 679,443    |   |                          |   | 842,893     |                |  |   | 1,465,188      |   |  |   | 1,633,445   |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Total cost of sales (exclusive of amortization of acquired product rights)                      |  |                            | 1,483,273  |   |                          |   | 1,412,174   |                |  |   | 3,191,895      |   |  |   | 3,037,466   |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Gross margin                                                                                    |  |                            | 2,678,145  |   |                          |   | 3,145,610   |                |  |   | 5,305,588      |   |  |   | 7,402,061   |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|                                                                                                |  |                            |            |  
|Operating expenses:                                                                             |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Research and development                                                                        |  |                            | 1,868,777  |   |                          |   | 4,124,935   |                |  |   | 2,350,199      |   |  |   | 8,604,600   |  
|Research and development, related party                                                         |  |                            | 787,909    |   |                          |   | 1,423,976   |                |  |   | 4,122,087      |   |  |   | 1,423,976   |  
|Sales and marketing                                                                             |  |                            | 1,753,039  |   |                          |   | 2,258,632   |                |  |   | 3,479,592      |   |  |   | 4,436,086   |  
|General and administrative                                                                      |  |                            | 5,803,009  |   |                          |   | 6,503,256   |                |  |   | 11,382,312     |   |  |   | 13,206,808  |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Total operating expenses                                                                        |  |                            | 10,212,734 |   |                          |   | 14,310,799  |                |  |   | 21,334,190     |   |  |   | 27,671,470  |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|                                                                                                |  |                            |            |  
|Operating loss                                                                                  |  |                            | (7,534,589 | ) |                          |   | (11,165,189 | )              |  |   | (16,028,602    | ) |  |   | (20,269,409 | )
|Other income (expense):                                                                         |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Interest expense                                                                                |  |                            | (4,138,717 | ) |                          |   | (1,614,043  | )              |  |   | (17,089,292    | ) |  |   | (12,842,997 | )
|Interest expense, net, related party                                                            |  |                            | (2,492     | ) |                          |   | (11,268     | )              |  |   | (5,669         | ) |  |   | (22,785     | )
|Loss on sale of assets                                                                          |  |                            | (3,091     | ) |                          |   |            |                |  |   | (4,238         | ) |  |   | (1,181,325  | )
|Derivative gain (Note 11)                                                                       |  |                            | 3,359,781  |   |                          |   | 8,826,668   |                |  |   | 1,057,062      |   |  |   | 8,176,737   |  
|Convertible debenture inducement loss                                                           |  |                            |           |   |                          |   | (4,547,503  | )              |  |   |               |   |  |   | (4,547,503  | )
|Loss on financing transaction (Note 12)                                                         |  |                            |           |   |                          |   |            |                |  |   |               |   |  |   | (8,780,712  | )
|Loss on extinguishment of debt (Note 13)                                                        |  |                            | (383,895   | ) |                          |   |            |                |  |   | (1,829,150     | ) |  |   |            |  
|Absorption of prior gains against minority interest                                             |  |                            |           |   |                          |   | 7,500       |                |  |   |               |   |  |   | 276,901     |  
|Other income (expense)                                                                          |  |                            | 292,915    |   |                          |   | (15,528     | )              |  |   | 540,271        |   |  |   | 30,717      |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Loss before non-controlling interest in losses from variable interest entities and income taxes |  |                            | (8,410,088 | ) |                          |   | (8,519,363  | )              |  |   | (33,359,618    | ) |  |   | (39,160,376 | )
|Non-controlling interest in losses from variable interest entities (Note 19)                    |  |                            | 117,405    |   |                          |   | 478,289     |                |  |   | 225,085        |   |  |   | 478,289     |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Loss before income taxes                                                                        |  |                            | (8,292,683 | ) |                          |   | (8,041,074  | )              |  |   | (33,134,533    | ) |  |   | (38,682,087 | )
|Income taxes                                                                                    |  |                            |           |   |                          |   |            |                |  |   |               |   |  |   |            |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Net Loss                                                                                        |  | $                          | (8,292,683 | ) |                          | $ | (8,041,074  | )              |  | $ | (33,134,533    | ) |  | $ | (38,682,087 | )
|Preferred stock dividend                                                                        |  |                            | (226,499   | ) |                          |   |            |                |  |   | (226,499       | ) |  |   |            |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Loss attributable to common shareholders                                                        |  | $                          | (8,519,182 | ) |                          | $ | (8,041,074  | )              |  | $ | (33,361,032    | ) |  | $ | (38,682,087 | )
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Weighted average shares outstanding, basic and diluted                                          |  |                            | 43,681,670 |   |                          |   | 32,815,821  |                |  |   | 42,661,240     |   |  |   | 32,262,128  |  
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Per share amounts, basic and diluted:                                                           |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  
|Loss attributable to common stockholders per common share                                       |  | $                          | (0.20      | ) |                          | $ | (0.25       | )              |  | $ | (0.78          | ) |  | $ | (1.20       | )
|                                                                                                |  |                            |            |   |                          |   |             |                |  |   |                |   |  |   |             |  

See notes to condensed consolidated financial statements.



4



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS
DEFICIT

FOR THE SIX MONTHS ENDED MARCH 31, 2008

(Unaudited)



|                                                                                              |  |              |  |                   |        |         |                     |             |   |       |   |              |   |  |   |             |  
|--------------------------------------------------------------------------------------------- |  | ------------ |  | ----------------- | ------ | ------- | ------------------- | ----------- | - | ----- | - | ------------ | - |  | - | ----------- | -
|                                                                                              |  | Common Stock |  | AdditionalPaid-In |        |         | Accumulated Deficit |             |   | Total |  
|                                                                                              |  | Shares       |  | Amount            |        | Capital |                     |             |  
|Balances, October 1, 2007                                                                     |  | 39,588,900   |  | $                 | 39,589 |         | $                   | 172,449,173 |   |       | $ | (237,585,476 | ) |  | $ | (65,096,714 | )
|Exercise of warrants for cash                                                                 |  | 1,738,328    |  |                   | 1,738  |         |                     | 4,639,598   |   |       |   |             |   |  |   | 4,641,336   |  
|Share-based compensation                                                                      |  |             |  |                   |       |         |                     | 2,585,412   |   |       |   |             |   |  |   | 2,585,412   |  
|Reclassification of capitalized finance cost to equity upon conversion of debentures (Note 9) |  |             |  |                   |       |         |                     | (353,827    | ) |       |   |             |   |  |   | (353,827    | )
|Common stock of subsidiary issued for debt extension                                          |  |             |  |                   |       |         |                     | 440,000     |   |       |   |             |   |  |   | 440,000     |  
|Conversion of minimum borrowing note (Note 9)                                                 |  | 120,000      |  |                   | 120    |         |                     | 320,280     |   |       |   |             |   |  |   | 320,400     |  
|Common stock issued for services                                                              |  | 180,481      |  |                   | 180    |         |                     | 840,510     |   |       |   |             |   |  |   | 840,690     |  
|Common stock warrants issued for financing cost                                               |  |             |  |                   |       |         |                     | 8,433,925   |   |       |   |             |   |  |   | 8,433,925   |  
|Conversion of debentures to common stock                                                      |  | 2,873,698    |  |                   | 2,874  |         |                     | 6,315,902   |   |       |   |             |   |  |   | 6,318,776   |  
|Accretion of preferred stock discount                                                         |  |             |  |                   |       |         |                     |            |   |       |   | (111,963     | ) |  |   | (111,963    | )
|Issuance of preferred stock                                                                   |  |             |  |                   |       |         |                     | 2,456,495   |   |       |   |             |   |  |   | 2,456,495   |  
|Deemed dividend on preferred stock                                                            |  |             |  |                   |       |         |                     |            |   |       |   | (114,536     | ) |  |   | (114,536    | )
|Net loss for the period                                                                       |  |             |  |                   |       |         |                     |            |   |       |   | (33,134,533  | ) |  |   | (33,134,533 | )
|                                                                                              |  |              |  |                   |        |         |                     |             |   |       |   |              |   |  |   |             |  
|Balances, March 31, 2008                                                                      |  | 44,501,407   |  | $                 | 44,501 |         | $                   | 198,127,468 |   |       | $ | (270,946,508 | ) |  | $ | (72,774,539 | )
|                                                                                              |  |              |  |                   |        |         |                     |             |   |       |   |              |   |  |   |             |  

See notes to condensed consolidated financial statements.



5



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                               |  |                                    |             |   |      |   |             |  
|------------------------------------------------------------------------------ |  | ---------------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                               |  | For the Six Months EndingMarch 31, |            
|                                                                               |  | 2008                               |             |   | 2007 |  
|Cash flows from operating activities:                                          |  |                                    |             |   |      |   |             |  
|Net loss                                                                       |  | $                                  | (33,134,533 | ) |      | $ | (38,682,087 | )
|Adjustments to reconcile net loss to net cash flows from operating activities: |  |                                    |             |   |      |   |             |  
|Loss on sale of assets                                                         |  |                                    | 4,238       |   |      |   | 1,181,325   |  
|Loss on financing transaction                                                  |  |                                    |            |   |      |   | 8,780,712   |  
|Loss on extinguishment of debt                                                 |  |                                    | 1,829,150   |   |      |   |            |  
|Convertible debenture inducement loss                                          |  |                                    |            |   |      |   | 4,547,503   |  
|Change in fair market value adjustment of convertible debentures               |  |                                    | 2,029,728   |   |      |   | 6,946,545   |  
|Depreciation                                                                   |  |                                    | 372,709     |   |      |   | 278,980     |  
|Amortization                                                                   |  |                                    | 552,291     |   |      |   | 474,779     |  
|Share-based compensation                                                       |  |                                    | 2,585,412   |   |      |   | 2,180,006   |  
|Accretion of capitalized finance costs                                         |  |                                    | 8,299,063   |   |      |   | 1,090,142   |  
|Accretion of debt discounts                                                    |  |                                    | 4,010,030   |   |      |   | 1,317,269   |  
|Accretion of royalty liability                                                 |  |                                    | 272,914     |   |      |   |            |  
|Derivative gain                                                                |  |                                    | (1,057,062  | ) |      |   | (8,176,737  | )
|Issuance of common stock warrants for finance costs                            |  |                                    |            |   |      |   | 2,030,304   |  
|Issuance of common stock for services                                          |  |                                    | 840,690     |   |      |   |            |  
|Non-controlling interest in non-cash earnings from variable interest entities  |  |                                    | (230,306    | ) |      |   | (478,289    | )
|Other non-cash charges                                                         |  |                                    |            |   |      |   | (6,998      | )
|Increase (decrease) in cash resulting from changes in:                         |  |                                    |             |   |      |   |             |  
|Accounts receivable                                                            |  |                                    | 1,503,497   |   |      |   | (23,551     | )
|Inventories                                                                    |  |                                    | 601,010     |   |      |   | (1,474,938  | )
|Inventory deposits                                                             |  |                                    |            |   |      |   | 120,000     |  
|Unbilled receivables                                                           |  |                                    | (579,863    | ) |      |   | (447,062    | )
|Prepaid expenses and other current assets                                      |  |                                    | (129,539    | ) |      |   | (584,891    | )
|Other assets                                                                   |  |                                    | 92,423      |   |      |   | (8,454      | )
|Accounts payable                                                               |  |                                    | (3,478,279  | ) |      |   | 1,018,810   |  
|Accrued expenses                                                               |  |                                    | (9,388      | ) |      |   | (1,572,121  | )
|Unearned revenues                                                              |  |                                    | 112,524     |   |      |   | (390,715    | )
|Customer deposits                                                              |  |                                    | (593,437    | ) |      |   | (20,248     | )
|                                                                               |  |                                    |             |   |      |   |             |  
|Net cash flows from operating activities                                       |  |                                    | (16,106,728 | ) |      |   | (21,899,716 | )
|                                                                               |  |                                    |             |   |      |   |             |  
|Cash flows from investing activities:                                          |  |                                    |             |   |      |   |             |  
|Proceeds from sale of assets                                                   |  |                                    | 17,713      |   |      |   | 4,811,143   |  
|Release of restricted cash, net                                                |  |                                    | 1,630,498   |   |      |   | 2,365,114   |  
|Acquisition of furniture, equipment, and leasehold improvements                |  |                                    | (80,178     | ) |      |   | (111,444    | )
|Cash paid for acquisition of product rights and other intangibles              |  |                                    | (200,000    | ) |      |   | (4,250,300  | )
|                                                                               |  |                                    |             |   |      |   |             |  
|Net cash flows from investing activities                                       |  |                                    | 1,368,033   |   |      |   | 2,814,513   |  
|                                                                               |  |                                    |             |   |      |   |             |  

(Continued)



6



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Continued)



|                                                                                       |  |                                    |            |   |      |   |            |  
|-------------------------------------------------------------------------------------- |  | ---------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                       |  | For the Six Months EndingMarch 31, |           
|                                                                                       |  | 2008                               |            |   | 2007 |  
|Cash flows from financing activities:                                                  |  |                                    |            |   |      |   |            |  
|Proceeds from sale of convertible preferred stock                                      |  |                                    | 8,729,000  |   |      |   |           |  
|Payments on notes payable and long-term debt                                           |  |                                    | (4,234,222 | ) |      |   | (4,524,980 | )
|Proceeds from the exercise of stock options                                            |  |                                    |           |   |      |   | 977,609    |  
|Proceeds from the exercise of stock warrants                                           |  |                                    | 4,641,336  |   |      |   |           |  
|Payment of financing costs                                                             |  |                                    | (959,231   | ) |      |   |           |  
|Proceeds from non-controlling investment in variable interest equity                   |  |                                    |           |   |      |   | 2,400,000  |  
|Proceeds from notes payable                                                            |  |                                    | 8,606,851  |   |      |   | 1,756,480  |  
|Proceeds from convertible debentures                                                   |  |                                    |           |   |      |   | 18,800,001 |  
|Proceeds from notes payable, related party                                             |  |                                    | 300,000    |   |      |   |           |  
|Payments on line of credit, related party                                              |  |                                    | (1,705,000 | ) |      |   |           |  
|Payments made to related party, net                                                    |  |                                    | (168,290   | ) |      |   | (31,613    | )
|Payment of royalty liability                                                           |  |                                    | (500,000   | ) |      |   |           |  
|Proceeds from long-term debt                                                           |  |                                    | 500,000    |   |      |   |           |  
|Proceeds from (repayment of) line of credit, net                                       |  |                                    | (577,660   | ) |      |   | 34,143     |  
|                                                                                       |  |                                    |            |   |      |   |            |  
|Net cash flows from financing activities                                               |  |                                    | 14,632,784 |   |      |   | 19,411,640 |  
|                                                                                       |  |                                    |            |   |      |   |            |  
|Net change in cash and cash equivalents                                                |  |                                    | (105,911   | ) |      |   | 326,437    |  
|                                                                                       |  |                                    |            |   |      |   |            |  
|Cash and cash equivalents at beginning of period                                       |  |                                    | 1,623,140  |   |      |   | 15,391,799 |  
|                                                                                       |  |                                    |            |   |      |   |            |  
|Cash and cash equivalents at end of period                                             |  | $                                  | 1,517,229  |   |      | $ | 15,718,236 |  
|                                                                                       |  |                                    |            |   |      |   |            |  
|                                                                                       |  |                                   
|Supplemental cash flow information:                                                    |  |                                    |            |   |      |   |            |  
|Cash paid for:                                                                         |  |                                    |            |   |      |   |            |  
|Interest                                                                               |  | $                                  | 2,763,948  |   |      | $ | 1,371,574  |  
|Income taxes                                                                           |  | $                                  |           |   |      | $ |           |  
|                                                                                       |  |                                   
|Supplemental disclosure of non-cash financing activity:                                |  |                                    |            |   |      |   |            |  
|Conversions of convertible debentures to equity                                        |  | $                                  | 5,570,172  |   |      | $ | 2,773,626  |  
|Reclassification of capitalized finance costs to equity upon conversions of debentures |  | $                                  | 353,827    |   |      | $ |           |  
|Common stock warrants issued for capitalized finance costs                             |  | $                                  | 7,636,792  |   |      | $ |           |  
|Stock options issued for accrued bonus payable                                         |  | $                                  |           |   |      | $ | 1,241,633  |  
|Conversion of minimum borrowing note (Note 9)                                          |  | $                                  | 320,400    |   |      | $ |           |  
|Common stock issued for debt extension                                                 |  | $                                  | 440,000    |   |      | $ |           |  

See notes to condensed consolidated financial statements.



7



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

1. Description of business and summary of significant accounting policies:

Accentia Biopharmaceuticals, Inc. and its subsidiaries (collectively referred to as the Company or Accentia) is a vertically integrated
biopharmaceutical company focused on the development and commercialization of late-stage, targeted therapeutic clinical products. We have three products in or entering Phase 3 clinical trials, two of which have fast-track status. All three products
modify the immune system to treat disease. Our first such product candidate, SinuNase, is being developed as a treatment for chronic sinusitis (CS) which the medical establishment also refers to as chronic rhinosinusitis (CRS), which is a
chronic inflammatory condition of the paranasal sinuses that among others, results in nasal congestion, facial pain and pressure, nasal discharge, and headaches. SinuNase is an amphotericin B suspension that is self-administered into a
patients nasal cavity for the treatment of CS. If approved by the FDA, we expect that SinuNase would be the first and only foreseeable pharmaceutical product indicated for the treatment of chronic sinusitis. In April 2005, we submitted an
Investigational New Drug Application, or IND, with the FDA for SinuNase. In December 2006, we commenced the first of two Phase 3 clinical trials for SinuNase for patients who have recurrent CS whose disease severity has warranted surgical
intervention for CS sometime in the past, and in November 2007 we completed randomization of all patients required under the SinuNase Phase 3 clinical trial protocol. We announced top-line unblinded results of the Phase 3 data relating to the
primary endpoint in March 2008, and have provided follow-up data on more detailed analysis of the unblinded results in April 2008. Discussions are planned with FDA as to the continued clinical development and the pathway to commercialization of
SinuNase.

Our second product candidate, BiovaxID®, under development by our subsidiary, Biovest International Inc., a publicly held company in which
we currently hold approximately 76% of the outstanding capital stock (Biovest) is a patient-specific anti-cancer vaccine to treat follicular non-Hodgkins lymphoma, or follicular NHL. Follicular NHL is a cancer of the lymphatic system
that results when the bodys follicle center cells, which are a type of white blood cell, become abnormal and eventually spread throughout the body growing and dividing in an uncontrolled fashion. BiovaxID is a customized, patient specific
therapeutic anti-cancer vaccine that is derived from a patients own cancer cells and is designed to utilize the power of the patients immune system to recognize and destroy cancerous lymphoma cells while sparing normal cells. We produce
this vaccine by extracting a portion of the patients tumor cells and then replicating and purifying the unique antigen that is present only on the surface of the patients own tumor cells. Biovest is currently conducting a pivotal Phase 3
clinical trial for BiovaxID in patients with the indolent, or low-grade, form of B-cell follicular NHL. Based on its analysis of available unblinded clinical trial data from the BiovaxID Phase 3 trial, in June 2007 the independent Data Monitoring
Committee (DMC) for BiovaxID recommended that Biovest conduct an interim analysis of the studys efficacy endpoints and overall safety profile. In April 2008, the DMC reviewed the unblinded data from the study and recommended that the trial be
halted and the data from the study be unblinded in August 2008 for submission to the FDA and worldwide regulatory authorities. Discussions are planned with FDA as to accelerated approval process and the pathway to commercialization of BiovaxID.

Our third product candidate, Revimmune, is being developed as a treatment for multiple sclerosis (MS). MS is an autoimmune disease that affects the
central nervous system (CNS). Revimmune therapy consists of approximately four consecutive days of in-patient or out-patient treatment with an ultra-high intensity, short-course of an intravenous formulation of an approved drug (cyclophosphamide).
This treatment seeks to reboot a patients immune system, thereby eliminating the autoimmunity which is characteristic of MS. The rebooting process is achieved by temporarily eliminating peripheral immune
cells, including the immune cells causing the autoimmunity, while selectively sparing the stem cells in the bone marrow. The surviving stem cells are able, typically within two-three weeks, to repopulate the body with a nascent immune system which
lacks misdirected immunity to self-antigens. In July 2007, the Company filed a pre-IND submission with the FDA for the commencement of a Phase 3 clinical trial and conducted pre-IND meetings. We are preparing to file our IND with the FDA in the
first half of calendar 2008. The Company believes that Revimmune may additionally have applications for the treatment of a variety of autoimmune diseases other than MS, including Systemic Lupus, Myasthenia Gravis and Aplastic Anemia.



8



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



2. Significant accounting policies and consolidation policy:

Basis of presentation

The accompanying condensed consolidated
financial statements have been derived from unaudited interim financial information prepared in accordance with the rules and regulations of the Securities and Exchange Commission for quarterly financial statements. Certain information and footnote
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 so that the information presented is not misleading. The condensed consolidated 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 condensed consolidated financial statements.

Operating results for
the three and six months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the entire fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included
in the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2007.

Consolidation policy

The Company consolidates all entities controlled by ownership of a majority voting interest and, effective February 27, 2007, has consolidated a variable interest
entity of which the Company is the primary beneficiary. The consolidated financial statements include Accentia Biopharmaceuticals, Inc. and its wholly-owned subsidiaries, Analytica International, Inc. (Analytica), TEAMM Pharmaceuticals,
Inc. d/b/a Accentia Pharmaceuticals (Accentia Pharmaceuticals), Accent RX, Inc. (AccentRx), and Accentia Specialty Pharmacy (ASP); its majority-owned subsidiary, Biovest and its subsidiaries, and Revimmune LLC
(Revimmune), an entity in which the Company has a controlling financial interest and has been determined to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.

Loss per common share

The Company had net losses for
all periods presented in which potential common shares were in existence. Diluted loss per share assumes conversion of all potentially dilutive outstanding common stock options, warrants, or other convertible financial instruments. Potential common
shares outstanding are excluded from the calculation of diluted loss per share if their effect is anti-dilutive. As such, dilutive loss per share is the same as basic loss per share for all periods presented as the effect of all potential common
shares outstanding is anti-dilutive.

The following table sets forth the calculations of basic and diluted loss per share:



|                                                                    |  |                            |            |   |                           |   |            |                           |  |   |                           |   |  |   |             |  
|------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------- | - | ---------- | ------------------------- |  | - | ------------------------- | - |  | - | ----------- | -
|                                                                    |  | For the Three Months Ended |            |   | For the Six Months Ended  |  
|                                                                    |  | March 31, 2008(Unaudited)  |            |   | March 31, 2007(Unaudited) |   |            | March 31, 2008(Unaudited) |  |   | March 31, 2007(Unaudited) |  
|Numerator:                                                          |  |                            |            |   |                           |   |            |                           |  |   |                           |   |  |   |             |  
|Loss applicable to common stockholders                              |  | $                          | (8,519,182 | ) |                           | $ | (8,041,074 | )                         |  | $ | (33,361,032               | ) |  | $ | (38,682,087 | )
|                                                                    |  |                            |            |   |                           |   |            |                           |  |   |                           |   |  |   |             |  
|                                                                    |  |                            |            |  
|Denominator:                                                        |  |                            |            |   |                           |   |            |                           |  |   |                           |   |  |   |             |  
|Weighted average sharesbasic loss per share                        |  |                            | 43,681,670 |   |                           |   | 32,815,821 |                           |  |   | 42,661,240                |   |  |   | 32,262,128  |  
|Effect of dilutive securities                                       |  |                            |           |   |                           |   |           |                           |  |   |                          |   |  |   |            |  
|                                                                    |  |                            |            |   |                           |   |            |                           |  |   |                           |   |  |   |             |  
|Weighted average shares for dilutive loss per share                 |  |                            | 43,681,670 |   |                           |   | 32,815,821 |                           |  |   | 42,661,240                |   |  |   | 32,262,128  |  
|                                                                    |  |                            |            |   |                           |   |            |                           |  |   |                           |   |  |   |             |  
|Loss per share applicable to common stockholders, basic and diluted |  | $                          | (0.20      | ) |                           | $ | (0.25      | )                         |  | $ | (0.78                     | ) |  | $ | (1.20       | )
|                                                                    |  |                            |            |   |                           |   |            |                           |  |   |                           |   |  |   |             |  



9



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



The effect of common stock equivalents and common shares indexed to convertible debt and preferred securities are not
considered in the calculation of diluted loss per share because the effect would be anti-dilutive. They are as follows as of:



|                                              |  |                           |  |                          
|--------------------------------------------- |  | ------------------------- |  | -------------------------
|                                              |  | March 31, 2008(Unaudited) |  | March 31, 2007(Unaudited)
|Options and warrants to purchase common stock |  | 27,608,928                |  | 14,459,955               
|Convertible debt instruments                  |  | 13,076,697                |  | 16,256,158               
|Convertible preferred stock                   |  | 3,269,283                 |  |                         
|                                              |  |                           |  |                          
|                                              |  | 43,954,908                |  | 30,716,113               
|                                              |  |                           |  |                          

Reclassification:

Certain amounts in the March 31, 2008 condensed consolidated financial statements have been reclassified to conform with the fiscal 2008 presentation.

Recent accounting pronouncements:

In September 2005, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 157 (FAS 157). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This
Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is a relevant measurement attribute. Accordingly, this
Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current valuation and accounting practices. For fiscal years beginning after November 15, 2007, the Company
will be required to implement FAS 157 for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis in the financial statements. FAS 157 implementation for other
non-financial assets and liabilities, has been deferred to fiscal years beginning after November 15, 2008. Earlier application is permitted provided that the reporting entity has not yet issued financial statements for that fiscal year.
Management is currently assessing the effect, if any, adoption of FAS157 will have on the Companys financial position and results of operations.

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

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

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



10



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities(SFAS 161). This statement requires companies to provide enhanced disclosures about (a) how and why they use derivative instruments, (b) how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a companys financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008. The Company will adopt the new disclosure requirements on or before the required effective date and thus will provide additional disclosures in its consolidated
financial statements when adopted.

In April 2008, FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3)
was issued. This standard amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible
Assets. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company has not determined the impact on its
financial statements of this accounting standard.

3. Liquidity and managements plans:

The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes the Company will realize its assets and discharge its
liabilities in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company incurred net losses of $33.0 million, used cash from operations of approximately $16.0 million during the six months ended
March 31, 2008, and has a working capital deficit of approximately $67.5 million at March 31, 2008. Net losses for Biovest, whose results are consolidated with the Company, were approximately $7.8 million, during the same six month period.

The Company expects to finance its foreseeable cash requirements through public or private equity offerings and debt financings. Additionally, the Company
is seeking collaboration and license arrangements for each of its three product candidates, SinuNase, Revimmune and BiovaxID which are in, or in the instance of Revimmune is entering, Phase 3 clinical trials. The Company believes that its efforts
may benefit from the planned unblinding of the BiovaxID Phase 3 clinical trial results which is expected in or around August 2008. Additionally, if adequate funds are not available from the foregoing sources, the Company may consider additional
strategic financing options, including sales of assets or business units (such as specialty pharmaceuticals, market services or cell culture equipment) that are non-essential to the ongoing development or future commercialization of SinuNase,
BiovaxID or Revimmune, or it may be required to delay, reduce the scope of, or eliminate one or more of its research or development programs or curtail some of its commercialization efforts. The Company may seek to access the public or private
equity markets whenever conditions are favorable, even if it does not have an immediate need for additional capital at this time. The Company cannot be certain that additional funding will be available on acceptable terms, or at all.

The Company is in active negotiations to restructure or refinance its debt instruments including those which mature in fiscal year 2008. These debt instruments include
approximately $9.6 million due to Laurus Master Fund, Ltd. (Laurus) which matured on April 29, 2008 and, based on an ongoing oral understanding with Laurus, has not been paid pending discussions between the Company and Laurus
regarding the manner and timing of repayment. Additionally, the Company owes approximately $4.0 million to Southwest Bank Creve Coeur Financial Center (Southwest) which matures on June 30, 2008. The Company anticipates extending or
potentially restructuring. The Companys majority owned subsidiary, Biovest, owes Valens Offshore SPV II, Corp. and Valens U.S. SPV I, LLC., (collectively the Valens Funds) an affiliate Laurus approximately $8.5 million which
matures on June 10, 2008 and Pulaski Bank and Trust (Pulaski) approximately $1.1 million which matures on June 30, 2008. Biovest plans to repay these obligations at maturity from an anticipated potential financing. Further the Company
anticipates that unless otherwise refinanced its principal payment obligations under the convertible debentures issued in September 2006 and February 2007 will be largely satisfied without cash payments through redemptions of principal paid with its
common stock as permitted by these debt instruments.



11



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



4. Restricted Cash:

Pursuant to certain long-term debt and lines of credit agreements, the following cash balances were held in escrow as of March 31, 2008 and September 30, 2007:



|                                                                       |  |                           |         |                   |   |          
|---------------------------------------------------------------------- |  | ------------------------- | ------- | ----------------- | - | ---------
|                                                                       |  | March 31, 2008(Unaudited) |         | September 30,2007
|Funds from convertible debentures held to pay down certain Laurus debt |  | $                         | 393,542 |                   | $ | 2,503,330
|Funds from notes payable held for use in future operations, Biovest    |  |                           | 479,290 |                   |   |         
|                                                                       |  |                           |         |                   |   |          
|                                                                       |  | $                         | 872,832 |                   | $ | 2,503,330
|                                                                       |  |                           |         |                   |   |          

5. Inventories:

Inventories consist of the following:



|                                                                                                                         |  |                           |         |                   |   |          
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- | ------- | ----------------- | - | ---------
|                                                                                                                         |  | March 31, 2008(Unaudited) |         | September 30,2007
|Pharmaceutical products held for sale, net of allowances for obsolescence of $0.9 million and $0.6 million, respectively |  | $                         | 333,564 |                   | $ | 765,443  
|Finished goods, other                                                                                                    |  |                           | 174,239 |                   |   | 205,637  
|Work-in-process                                                                                                          |  |                           | 101,141 |                   |   | 311,302  
|Raw materials                                                                                                            |  |                           | 287,630 |                   |   | 215,202  
|                                                                                                                         |  |                           |         |                   |   |          
|                                                                                                                         |  | $                         | 896,574 |                   | $ | 1,497,584
|                                                                                                                         |  |                           |         |                   |   |          

6. Intangible assets:

Intangible assets consist of the following:



|                                   |  |                           |            |   |                   |   |            |                                   |  |           
|---------------------------------- |  | ------------------------- | ---------- | - | ----------------- | - | ---------- | --------------------------------- |  | ----------
|                                   |  | March 31, 2008(Unaudited) |            |   | September 30,2007 |   |            | WeightedAverageAmortizationPeriod
|Indefinite-life intangible assets: |  |                           |            |   |                   |   |            |                                   |  |           
|Trademarks                         |  | $                         | 1,176,433  |   |                   | $ | 1,176,433  |                                   |  |           
|Purchased customer relationships   |  |                           | 225,137    |   |                   |   | 225,137    |                                   |  |           
|                                   |  |                           |            |   |                   |   |            |                                   |  |           
|                                   |  |                           | 1,401,570  |   |                   |   | 1,401,570  |                                   |  |           
|                                   |  |                           |            |   |                   |   |            |                                   |  |           
|Amortizable intangible assets:     |  |                           |            |   |                   |   |            |                                   |  |           
|Noncompete agreements              |  |                           | 2,104,000  |   |                   |   | 2,104,000  |                                   |  | 3.5 years 
|Patents                            |  |                           | 149,872    |   |                   |   | 149,872    |                                   |  | 3.5 years 
|Purchased customer relationships   |  |                           | 1,043,813  |   |                   |   | 1,043,813  |                                   |  | 9.5 years 
|Product rights                     |  |                           | 15,164,018 |   |                   |   | 14,964,018 |                                   |  | 18.4 years
|Software                           |  |                           | 498,416    |   |                   |   | 498,416    |                                   |  | 3.5 years 
|Trademarks                         |  |                           | 109,526    |   |                   |   | 109,527    |                                   |  | 7.5 years 
|                                   |  |                           |            |   |                   |   |            |                                   |  |           
|                                   |  |                           | 19,069,645 |   |                   |   | 18,869,646 |                                   |  |           
|Less accumulated amortization      |  |                           | (6,107,435 | ) |                   |   | (5,555,144 | )                                 |  |           
|                                   |  |                           |            |   |                   |   |            |                                   |  |           
|                                   |  |                           | 12,962,210 |   |                   |   | 13,314,502 |                                   |  |           
|                                   |  |                           |            |   |                   |   |            |                                   |  |           
|Total intangible assets            |  | $                         | 14,363,780 |   |                   | $ | 14,716,072 |                                   |  |           
|                                   |  |                           |            |   |                   |   |            |                                   |  |           



12



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



7. Lines of credit:

Lines of credit consist of the following:



|                                                                                                                                                                                                                                                                                                                   |  |                           |            |                   |   |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- | ---------- | ----------------- | - | ----------
|                                                                                                                                                                                                                                                                                                                   |  | March 31, 2008(Unaudited) |            | September 30,2007
|Related Party:                                                                                                                                                                                                                                                                                                     |  |                           |            |                   |   |           
|Line of credit bridge note (Line of Credit) from an entity owned by an officer and major stockholder of the Company, interest at
4.25%, matures December 31, 2008 unsecured, maturing under certain conditions, as defined(a)(b)                                                                                 |  | $                         |           |                   | $ | 1,705,000 
|Other:                                                                                                                                                                                                                                                                                                             |  |                           |            |                   |   |           
|Secured revolving note, $2.5 million is convertible, due to Laurus, interest at prime plus 2%, minimum 10.0% (10.00% at March 31, 2008);
matures April 2008; (See Note 3) principal and accrued interest convertible at fixed conversion price of $2.67 per share (See Note 11 for additional conversion terms)(c) |  |                           | 7,147,790  |                   |   | 8,030,768 
|Revolving credit agreement, interest at prime rate (7.75% at March 31, 2008); matures June 30, 2008; secured by Companys accounts
receivable and guarantee of major stockholder                                                                                                                                   |  |                           | 4,000,000  |                   |   | 4,000,000 
|                                                                                                                                                                                                                                                                                                                   |  |                           |            |                   |   |           
|                                                                                                                                                                                                                                                                                                                   |  | $                         | 11,147,790 |                   | $ | 13,735,768
|                                                                                                                                                                                                                                                                                                                   |  |                           |            |                   |   |           



|(a) | The line of credit provides the Company with borrowing capacity of up to $7.5 million. On December 27, 2007, the Company issued 175,000 warrants with a fair value of $0.3
million to Hopkins Capital Group II, LLC (HCGII) in consideration for previous extensions and continued availability. The $0.3 million will be recognized as interest expense over the extension period.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Francis E. ODonnell, M.D., the Companys Chief Executive Officer and Chairman, is the sole manager of HCGII and several irrevocable trusts established by
Dr. ODonnell collectively constitute the largest equity owners of HCGII.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | On October 31, 2007, the Company entered into an amendment to its revolving credit facility with Laurus to extend the Companys access to its expanded borrowing
availability of $4.4 million under this revolving credit facility through April 29, 2008 (See Note 3). In consideration of the extension, the Company issued to Laurus a redeemable warrant to purchase up to 4,024,398 shares with an exercise
price of $2.67 per share until October 31, 2014 with piggy back registration rights. The fair value of the warrants of $7.2 million will be recognized as interest expense over the extension period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Weighted average interest rate on all short-term borrowings aggregated 9.2%, and 8.5% at March 31, 2008 and September 30, 2007, respectively.

8. Notes payable:

Notes payable consists of the following:



|                                                |  |                           |            |                   |   |          
|----------------------------------------------- |  | ------------------------- | ---------- | ----------------- | - | ---------
|                                                |  | March 31, 2007(unaudited) |            | September 30,2007
|Pulaski Bank and Trust Company (a)              |  | $                         | 1,160,827  |                   | $ | 1,884,173
|Southwest Bank Creve Coeur Financial Center (b) |  |                           | 200,173    |                   |   | 203,799  
|The Valens Funds  December 2007 note (c)       |  |                           | 8,500,000  |                   |   |         
|Other (d)                                       |  |                           | 476,864    |                   |   | 311,879  
|                                                |  |                           |            |                   |   |          
|                                                |  | $                         | 10,337,864 |                   | $ | 2,399,851
|                                                |  |                           |            |                   |   |          



13



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



8. Notes payable (continued):



|(a) | Pulaski Bank and Trust
|--- | ----------------------

On January 15, 2007, Biovest closed
an amended and restated loan transaction (Note 1) with Pulaski, which amended the Loan Agreement dated September 5, 2006 pursuant to which Pulaski agreed to loan $1.0 million to Biovest pursuant to an unsecured Promissory Note.
Biovest also closed on a second loan transaction with Pulaski on March 22, 2007 (Note 2), pursuant to which Pulaski agreed to loan an additional $0.75 million to Biovest pursuant to an unsecured Promissory Note. The combined
principal balance of these notes as of March 31, 2008 is $1.3 million. The notes had original maturity dates from April to July, which have subsequently been extended to June 30, 2008. The note can be prepaid by Biovest at any time without
penalty. The notes bear interest at the prime rate minus 0.5%, requiring monthly payments of interest only. The notes are an unsecured obligation of Biovest and is subordinated to Biovests outstanding loan to Laurus. The notes are guaranteed
by entities, officers and other individuals affiliated with Biovest or Accentia, the majority stockholder of Biovest. Biovest has entered into Indemnification Agreements with each of the guarantors. Biovest issued warrants to purchase 1,770,453
shares of Biovests common stock at an exercise price of $1.10 to certain officers and directors in conjunction with their guarantee of these notes payable.

Biovest and Pulaski extended the maturity date of the outstanding notes dated January 17, 2007 and March 22, 2007 in the respective amounts of $1,000,000 and the $750,000 to June 30, 2008. On February 14, 2008, Biovest
reduced the outstanding aggregate loan amounts through a payment of $750,000 to Pulaski. Pulaski and Biovest restated the notes to reflect the current aggregate principal amount of $1,050,000 and the current maturity date of June 30, 2008. The
notes continue to be unsecured obligations of Biovest and continue to be guaranteed by certain affiliates of the Company and Biovest. Biovest has agreed to issue to the guarantors, as additional consideration for the continuation of the guarantees,
warrants to purchase an aggregate total of 1,862,460 shares of Biovests common stock, par value $0.01 per share, at an exercise price of $1.10 per share (the Warrants) and expiring on February 13, 2013. The guarantors have
piggy-back registration rights for the shares underlying the Warrants. In addition, Biovest agreed to issue to Pulaski 400,000 shares of Biovests common stock in full payment of renewal/extension fees due to Pulaski in connection with these
Notes. Biovest applied the provisions of EITF 96-19, Debtors Accounting for Modification or Exchange of Debt Instruments to the Amendment. EITF 96-19 provides that substantial modifications of terms should be treated in the same manner
as an extinguishment of debt and thus accounted for under the provisions of SFAS 125. Biovest determined that the modifications of terms to the notes to Pulaski in addition to the issuance of 400,000 shares of common stock valued at $1.10 per share
constituted a substantial modification of terms and thus treated the extension as an extinguishment of debt. Biovest incurred a $384,000 loss on extinguishment of debt as a result of this transaction which is included in other income (expense) in
the accompanying condensed consolidated statements of operations for the six months ended March 31, 2008.

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



|(b) | Southwest Bank Creve Coeur Financial Center:
|--- | --------------------------------------------

On June 26,
2007, Biovest closed a loan transaction with Southwest. Southwest loaned $0.2 million to Biovest pursuant to an unsecured Promissory Note which matures on December 26, 2008, and can be prepaid by Biovest at any time without penalty. The note
bears interest at the prime rate plus 1.0% (8.75% per annum at March 31, 2008) requiring monthly payments of interest only. The note is an unsecured obligation of Biovest and is subordinated to Biovests outstanding loan to Laurus. The
note is guaranteed by an officer of Accentia and Biovest. Biovest has entered into an Indemnification Agreement with the guarantor whereby Biovest has agreed to indemnify and hold harmless the guarantor should the guarantee be called by the Lender.
In conjunction with the issuance of this note payable Biovest issued to the guarantor warrants to purchase 109,090 shares of Biovest common stock, at an exercise price of $1.10 per share (the Warrants). The Warrants will expire on
June 25, 2012. Under the terms of the Warrants, the guarantor shall have piggy-back registration rights for the shares underlying the Warrants. In compensation for the agreement to continue the existing Guarantee during the extension of the
term of the Promissory Note, Biovest issued additional warrants to the guarantor to purchase up to 240,000 shares of Biovest common stock at an exercise price of $1.10 per share upon the same terms as the previously issued Warrants.



14



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



8. Notes payable (continued):



|(c) | The Valens Funds:
|--- | -----------------

On December 10, 2007, Biovest completed a
financing transaction with the Valens Funds, both of which are subsidiary companies of Laurus, pursuant to which the Valens Funds purchased from Biovest two secured promissory notes in the aggregate principal amount of $8,500,000 and entered into
two royalty agreements whereby the Valens Funds have been granted royalty interests in the worldwide net commercial sales of the Biovests biologic products. The notes are non-amortizing, bear interest at prime plus 2.0%, with a minimum
interest rate of 11% and are payable in a single payment of principal and accrued interest on June 5, 2008. The obligations pursuant to the Notes are secured by a lien against all assets of Biovest and its subsidiaries and are guaranteed by
Biovest and its subsidiaries. Proceeds of the notes, after designated payments to the Valens Funds and Laurus in payment of outstanding obligations and prepayment of certain scheduled principal and interest payments, were disbursed into a restricted
account and will be released to Biovest based upon an agreed schedule. These notes also contain a default put option whereby upon an event of default Biovest would be required to pay to the Valens Funds a default payment of 130% of the outstanding
principal, interest and fees due. Biovest has concluded that this feature constitutes a derivative liability that requires accounting recognition at fair value. Biovest has utilized a probability-based, discounted cash flow approach to value the
put. (See Note 11).



|(d) | Other notes payable:
|--- | --------------------

On September 10, 2007, Biovest issued a
promissory note to a private third-party in the amount of $0.3 million. The note bears no interest, except in the case of default, at which point interest would begin to accrue at 18.0% per annum. Under the terms of this note all principal is
due on September 9, 2008. The note is an unsecured obligation of Biovest and is subordinated to Biovests outstanding loan to Laurus. Biovest is also obligated to issue $0.3 million in shares of Biovests common stock to this
individual on September 9, 2008. For purposes of calculating the number of shares to be issued, the stock will be valued at the lower of $1.10 per share or a discount of fifteen percent to the volume-weighted average trading price of
Biovests common shares for the 60 days prior to maturity. Biovest used the effective interest method to accrete the fair value of these shares as interest expense throughout the term of the note.

On October 12, 2007, Biovest issued an unsecured promissory note to a director of Biovest in the amount of $300,000. This loan bears interest at prime plus 2.0% and
is payable October 11, 2008. Biovest issued warrants to purchase 2,727,270 shares of Biovests common stock at $1.10 per share in conjunction with this loan.

On December 6, 2007, Biovest entered into an agreement with Venture Funding Ltd. (Venture) whereby the Company issued to Venture an unsecured, subordinated note in the amount of $45,000 in
satisfaction of past payment obligations of the Company to Venture. On December 10, 2007 an amortizing payment of $10,000 was made on this note with future payments due in eight equal quarterly installments plus accrued interest of prime plus
2% beginning March 31, 2008.



15



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



9. Long-term debt:

Long-term debt consists of the following:



|                                                                                                                                                                                                                                                                                                                                                             |  |                           |             |   |                   |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                                                                                                                                                                                                                                                             |  | March 31, 2008(unaudited) |             |   | September 30,2007 |  
|Convertible debentures  September 2006 (hybrid financial instrument), at fair value, face value of $10,216,403 (March 31, 2008), and
$12,940,359 (September 30, 2007), interest at 8% payable quarterly, principal payable in 37 monthly installments beginning October 2007 through September 29, 2010. Convertible to common stock at $2.60 per share (b) |  | $                         | 11,861,102  |   |                   | $ | 13,815,417  |  
|Convertible debentures  February 2007, face value of $21,103,784 (March 31, 2008) and $24,640,000 (September 30, 2007), interest at
8% payable quarterly, matures February 2011(c)                                                                                                                                                                          |  |                           | 11,550,338  |   |                   |   | 10,759,654  |  
|Convertible amortizing term note, due to Laurus, interest payable monthly at prime rate plus 4%, (11.75% at March 31, 2008), due April
2008, convertible into shares of common stock at $6.80 per share, exercisable through April 2008 (See Note 3) (d)                                                                                                     |  |                           | 2,754,833   |   |                   |   | 3,556,173   |  
|Convertible notes payable, Biovest 2000 bridge financing, interest at 10%, due in May 2008, convertible into shares of Biovest common stock at
$1.00 per share and include warrants to purchase 50,000 shares of Biovest common stock at an exercise price of $1.00 per share                                                                                |  |                           | 46,817      |   |                   |   | 46,817      |  
|Convertible amortizing term note (owed by Biovest), due to Laurus, interest payable monthly at prime rate plus 2%, (9.75% at March 31,
2008), payable monthly through March 31, 2009 (a)                                                                                                                                                                     |  |                           | 7,310,906   |   |                   |   | 7,121,871   |  
|Valens Offshore SPV II, Corp, $255,000 face value, prime rate plus 2%, (9.75% at March 31, 2007) note payable, due March 31, 2009
(e)                                                                                                                                                                                                                        |  |                           | 255,000     |   |                   |   |            |  
|Valens U.S. SPV I, LLC, $245,000 face value, prime rate plus 2%, (9.75% at March 31, 2008) note payable, due March 31, 2009
(e)                                                                                                                                                                                                                              |  |                           | 245,000     |   |                   |   |            |  
|Other                                                                                                                                                                                                                                                                                                                                                        |  |                           | 95,185      |   |                   |   | 107,728     |  
|Long term accrued interest                                                                                                                                                                                                                                                                                                                                   |  |                           | 41,376      |   |                   |   | 480,344     |  
|                                                                                                                                                                                                                                                                                                                                                             |  |                           |             |   |                   |   |             |  
|                                                                                                                                                                                                                                                                                                                                                             |  |                           | 34,160,557  |   |                   |   | 35,888,004  |  
|Less current maturities                                                                                                                                                                                                                                                                                                                                      |  |                           | (21,965,039 | ) |                   |   | (15,858,057 | )
|                                                                                                                                                                                                                                                                                                                                                             |  |                           |             |   |                   |   |             |  
|                                                                                                                                                                                                                                                                                                                                                             |  | $                         | 12,195,518  |   |                   | $ | 20,029,947  |  
|                                                                                                                                                                                                                                                                                                                                                             |  |                           |             |   |                   |   |             |  

Convertible amortizing term note (a)

This note is collateralized by all cash, restricted cash, accounts receivable, inventory, fixed assets and other assets of Biovest. The note also contains certain restrictive covenants. Pursuant to the original terms
of this secured promissory note, Biovest was required to make certain principal and interest payments commencing in August 2007. A Letter Agreement rescheduling future payments due from Biovest to Laurus under the Note became effective on
April 17, 2007. Under the Letter Agreement past due and ongoing principal payments on the Note were deferred until August 1, 2007, when adjusted monthly principal payments of $0.3 million were to commence. As consideration for the
forbearance Biovest granted to Laurus a non-cancelable royalty equal to three percent of world-wide net sales of AutovaxID instruments for a period of five years commencing on May 31, 2007. Under the terms of the royalty agreement the
Companys royalty payments to Laurus are required to aggregate to a minimum of $8 million, less actual royalties paid, being due at the end of the five year royalty term (Note 10). In addition, upon satisfaction of certain conditions of the
Letter Agreement, Laurus consented to Biovest seeking and, if available, entering into bridge loans in an aggregate amount of up to $7.0 million, (see Note 13).

October 2007 Amendment to Laurus Loan:

On October 31, 2007, Biovest executed amendment agreements with its senior lender, Laurus, to
defer payments of principal and interest on its $7.8 million loan until January, 2008 at which point adjusted principal payments of $0.3 million per month plus interest will commence. Interest on this loan will continue to accrue at prime plus 2.0%
(9.75% at March 31, 2008).



16



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



9. Long-term debt (continued):



Convertible debentures  September 2006 (b)

The September 2006 private placement of $25.0 million in principal amount of 8% Secured Convertible Debentures due September 29, 2010 (the September 2006
Debentures) resulted in gross proceeds of $23.5 million after placement agent fees of $1.5 million but before other expenses associated with the transaction. The September 2006 Debentures are convertible at any time at the option of the holder
into shares of the Companys common stock at $2.60 per share, subject to adjustment for stock splits, stock dividends, and the like. Interest is payable quarterly in arrears in cash, or, at the Companys option, in shares of Company common
stock from and after an event of default under the September 2006 Debentures and for so long as the event of default is continuing, the Debentures will bear default interest at a rate of 18% per annum.

Beginning October 1, 2007, and on the 1stof each month thereafter, the Company was required to redeem 1/37thof the face value of the September 2006
Debentures in cash or, at the Companys election, with shares of Company common stock, shares of Biovest common stock held by the Company, or a combination thereof. On October 31, 2007, the Company and holders of 84% of the September 2006
Debentures agreed to defer required monthly redemption payments under the September 2006 Debentures from November 1, 2007 through May 1, 2008 and to allow any unconverted balance of those amounts to be redeemed on the Maturity Date of the
September 2006 Debentures.

As a part of the September 2006 Debentures offering, the Company issued Warrants to the purchasers of the September 2006
Debentures giving them the right to purchase up to an aggregate of 3,136,201 shares of the Companys common stock at an exercise price of $2.75 per share, provided that such Warrants may be alternatively exercised for shares of Biovest common
stock held by the Company at an exercise price of $1.10 per share. The warrant exercise prices are subject to adjustment for stock splits, stock dividends, and the like. These will expire on September 29, 2011.

As of March 31, 2008, approximately $14.8 million of principal has been converted to common stock and therefore, $10.2 million (face value) of the September 2006
Debentures are included on the March 31, 2008 consolidated balance sheet at a fair value of $11.9 million.

Convertible debentures 
February 2007 (c)

The February 2007 private placement of $24.7 million in principal amount of 8% Secured Convertible Debentures issued on
February 28, 2007, and maturing February 28, 2011 (the February 2007 Debentures) resulted in gross proceeds of $18,800,000 after placement fees of approximately $2.0 million not including other expenses associated with the
transaction. The February 2007 Debentures are convertible at the option of the holder at $2.67 per share, subject to an adjustment, as defined.

Beginning
on March 1, 2008, and on the 1st of each month thereafter, the Company is redeeming 1/37th of the face value of the February 2007 Debentures in cash or, at its election, with shares of our common stock. The first redemption occurred in stock
during the period ended March 31, 2008.

In conjunction with the issuance of the February 2007 Debentures, in order to induce certain investors from
the September 2006 Debentures to increase their investment by purchasing additional debentures in the February 2007 Debentures, the Company offered a discount on the February 2007 Debentures and additional warrants to purchase shares of common stock
with the issuance of the February 2007 Debentures. The Company issued $17,940,000 face value convertible debentures to certain investors for proceeds of $13,000,001, and 1,049,750 additional warrants with an estimated fair value of approximately
$1,740,000 to these investors. The Company recognized a loss of $4,547,503 pursuant to this inducement during the year ended September 30, 2007. On September 5, 2007 the Company extended the forced conversion until March 31, 2008.



17



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



9. Long-term debt (continued):



Convertible debentures  February 2007 (c) (continued)



As a part of the February 2007 Debentures, the Company issued warrants to the purchasers of the February 2007
Debentures giving them the right to purchase up to an aggregate of 2.2 million shares of the Companys common stock at an exercise price of $2.94 per share (the Long Term Warrants) and an aggregate of 3.1 million shares of
the Companys common stock at an exercise price of $2.67 per share (the Short Term Warrants and, together with the Long Term Warrants, the Warrants). The Warrants are immediately exercisable, and the exercise prices for
the Warrants are subject to adjustment for stock splits, stock dividends, and the like. In connection with the February 2007 Debentures, the Company also issued to the placement agents for the transaction Long Term Warrants to purchase an aggregate
of approximately 0.4 million shares of our common stock. All of the Long Term Warrants will expire on the fifth (5th) anniversary of the issue date of such warrants, and all of the Short Term Warrants were to expire September 17,
2007; however, the Short Term Warrants were extended until September 28, 2007 and further extended until October 19, 2007.

On October 19,
2007, the Company engaged in an effort to have the holders exercise the short-term warrants in connection with the February 2007 Debentures. The Short-term Warrants, as amended, were scheduled to expire on October 19, 2007. As
a consequence of this effort, the Company received an aggregate of $4.6 million in cash from the exercise of the Short-term Warrants at $2.67 per share, 2,568,564 Short-term Warrants expired unexercised and the Company also issued additional
warrants to certain of the holders of the February 2007 Debentures to purchase an additional 1,895,133 shares of the Companys Common Stock. These additional warrants have an exercise price of the $2.67 per share and a term expiring on the
first to occur of January 19, 2009 or three days following notice of the Companys common stock trading at $6 per share based on a 10-day volume weighted average.

Laurus Master Fund, Ltd. secured revolving term note and convertible term note (d)

On
April 29, 2005, the Company obtained an aggregate total of $10.0 million in debt financing from Laurus. The term loan portion of the Laurus credit facility is evidenced by a secured convertible term note in the principal amount of $5.0 million.
The revolving loan portion of the credit facility is evidenced by a secured convertible minimum borrowing note in the amount of $2.5 million and a secured revolving note of up to $5.0 million, provided that the aggregate principal amount under both
notes combined may not exceed $5.0 million.

In August 2005, the term loan portion of the Laurus credit facility was amended and restated secured
convertible term note, dated August 16, 2005, in the principal amount of $10.0 million (an increase of $5.0 million). The amended and restated secured convertible term note accrues interest at a rate of the greater of 10% per annum or
prime rate plus 4%. The secured convertible minimum borrowing note and secured revolving note accrue interest at a rate equal to the greater of 7.25% per year or prime rate plus 2%. Certain repayment terms were conditional based on timing of
the initial public offering. As a result of completion of the offering, the amended and restated secured convertible term note is payable over three years in equal monthly payments of principal and interest of $0.3 million. The secured revolving
note and secured convertible minimum borrowing note are due on the third anniversary of the notes with all accrued but unpaid interest payable monthly. In March 2008, Laurus converted $320,400 of the minimum borrowing note into 120,000 shares of the
Companys common stock.

In connection with the Laurus credit facility, the Company issued to Laurus a warrant to purchase a number of shares of our
common stock that is equal to $8.0 million divided by our per share initial public offering price ($8.00) (1,000,000 warrants), and such warrant has an exercise price equal to our per share initial public offering price ($8.00).

The warrant will expire on the 5th anniversary of the date of warrant issuance. As a part of the August 2005 amendment to the Laurus credit facility, the Company granted
Laurus an additional warrant to purchase up to 277,778 shares of the Companys common stock at an exercise price of $0.001 per share. This additional warrant is exercisable and, except for the absence of a forced exercise provision, has
substantially the same terms and conditions as the other warrant granted to Laurus.



18



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



9. Long-term debt (continued):



Laurus Master Fund, Ltd. secured revolving term note and convertible term note (d)(continued)



Effective as of January 31, 2008, the Company entered into amendments to its credit facility with Laurus to:
(i) extend the maturity date of the Minimum Borrowing Note dated April 29, 2005 from its present maturity date of March 31, 2008 through April 29, 2008 which, based on an ongoing oral understanding with Laurus, has not been paid
pending discussions between the Company and Laurus regarding the manner and timing of repayment and (ii) provide for the release of certain collateral from the security interest of Laurus at such time as the Companys indebtedness to
Laurus is paid in full but at a time when the Companys pledge and security commitments with regard to indebtedness of Biovest to Laurus remain outstanding.

Also effective as of January 31, 2008, the Company and Laurus amended certain redemption terms of the redeemable warrant issued to Laurus on October 30, 2007 (the Redeemable Warrant) to purchase up to 4,024,398 shares
of the Companys common stock to specify that the Company shall be entitled to exercise its right to terminate and cancel the Redeemable Warrant by making a cash payment in an amount equal to approximately $0.99 for each share underlying the
Redeemable Warrant through and including March 31, 2008.

Also effective as of January 31, 2008, the Company entered into an agreement with
Laurus whereby the Company agreed to decrease the exercise price on a certain Warrant to purchase one million shares of the Companys common stock previously issued to Laurus on August 16, 2005 (the August 2005 Warrant)
from $8.00 per share to $2.67 per share, with the remaining terms of the August 2005 Warrant remaining the same.

The principal and accrued but unpaid
interest under the Laurus term note is convertible at the option of Laurus into shares of our common stock at $6.80 per share. The principal of the Laurus minimum borrowing note is convertible at $2.67 per share.



|                                                       |  |                           |            |  
|------------------------------------------------------ |  | ------------------------- | ---------- | -
|                                                       |  | March 31, 2008(Unaudited) |           
|Carrying value of note payable, October 1, 2007        |  |                           | 11,586,941 |  
|Accretion of discount                                  |  |                           | 826,645    |  
|Debt repayments, net                                   |  |                           | (2,190,563 | )
|Conversion to common stock                             |  |                           | (320,400   | )
|                                                       |  |                           |            |  
|Carrying value of note payable, March 31, 2008         |  | $                         | 9,902,623  |  
|                                                       |  |                           |            |  
|                                                       | 
|As presented on consolidated balance sheet:            |  |                           |            |  
|Current maturities of convertible amortizing term note |  | $                         | 2,754,833  |  
|Lines of credit-secured revolving note                 |  |                           | 7,147,790  |  
|Long-term debt, net of current maturities (See Note 9) |  |                           |           |  
|                                                       |  |                           |            |  
|Total                                                  |  | $                         | 9,902,623  |  
|                                                       |  |                           |            |  

Included in restricted cash is $0.4 million which is reserved for payment on the Laurus Term Note.

The discount to the debt instruments resulting from the aforementioned allocation is being amortized through periodic charges to interest expense using the effective
interest method.



19



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



9. Long-term debt (continued):



Valens Offshore SPV II, Corp, and Valens U.S. SPV I, LLC secured promissory notes (e)

On October 30, 2007, Biovest completed a financing transaction with the Valens Funds. Pursuant to this transaction, the Valens Funds purchased from Biovest two
secured promissory notes in the aggregate principal amount of $500,000 and entered into two royalty agreements whereby the Valens Funds have been granted 2% royalty interests in the worldwide net commercial sales of Biovests biologic products.
The notes are non-amortizing and accrue interest at prime plus 2%, with a minimum of 9% interest. Interest is payable monthly in arrears, commencing November 1, 2007. The principal balance of both notes is due upon maturity on March 31,
2009.

Fair value of debt instruments

The fair
value of certain financial instruments are included for disclosure purposes only and are estimated based upon the present value of the estimated cash flow at credit risk adjusted interest rates for convertible instruments. As of March 31, 2008
and September 30, 2007, estimated fair values and respective carrying values for certain debt instruments are as follows:



|                                                     |  |                            |            |                    |   |            |  |               |            |  |   |           
|---------------------------------------------------- |  | -------------------------- | ---------- | ------------------ | - | ---------- |  | ------------- | ---------- |  | - | ----------
|                                                     |  | March 31, 2008 (unaudited) |            | September 30, 2007
|                                                     |  | Fair Value                 |            | CarryingValue      |   | Fair Value |  | CarryingValue
|$7,799,000 Secured Term Note (Biovest)               |  | $                          | 7,368,072  |                    | $ | 7,310,906  |  | $             | 6,332,730  |  | $ | 7,121,871 
|$24,940,000 Convertible debentures                   |  | $                          | 18,827,799 |                    | $ | 11,550,338 |  | $             | 20,855,984 |  | $ | 13,815,417
|$10,000,000 Face Value Convertible Secured Term Note |  | $                          | 2,882,790  |                    | $ | 2,754,833  |  | $             | 3,557,900  |  | $ | 3,556,173 
|$10,000,000 Revolving Line of Credit                 |  | $                          | 7,098,376  |                    | $ | 7,147,790  |  | $             | 7,607,663  |  | $ | 8,030,768 
|                                                     |  |                            |            |                    |   |            |  |               |            |  |   |           
|                                                     |  | $                          | 36,177,037 |                    | $ | 28,763,867 |  | $             | 38,354,277 |  | $ | 32,524,229
|                                                     |  |                            |            |                    |   |            |  |               |            |  |   |           

Future maturities of long-term debt are as follows as of March 31, 2008:



|                                                                                 |  |   |            |  
|-------------------------------------------------------------------------------- |  | - | ---------- | -
|2009                                                                             |  | $ | 24,743,215 |  
|2010                                                                             |  |   | 9,786,561  |  
|2011                                                                             |  |   | 8,053,081  |  
|                                                                                 |  |   |            |  
|                                                                                 |  |   | 42,582,857 |  
|Less unamortized discount and adjustment to fair value on convertible debentures |  |   | (8,422,299 | )
|                                                                                 |  |   |            |  
|                                                                                 |  | $ | 34,160,558 |  
|                                                                                 |  |   |            |  



20



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



10. Royalty liability:

On April 17, 2007, Biovest executed an amendment agreement (the Amendment) with its senior lender,
Laurus, to defer payments of principal on its $7.8 million loan (Note 9). As consideration for the forbearance Biovest granted to Laurus a non-cancelable royalty equal to three percent of world-wide net sales of AutovaxID instruments for a period of five years commencing on May 31, 2007. Under the terms of the royalty agreement the Companys royalty payments to Laurus are required to aggregate to a minimum of $8.0 million.
On December 10, 2007, the Company paid $0.5 million of the minimum royalty. Future payments are due quarterly with the balance of the royalty (if any), less actual royalties paid, being due on May 31, 2012.

The Company recorded the royalty liability based on the present value of the minimum payments (discounted at an annual rate of 11%) due under the Amendment. Management
has determined that the recorded liability represents their best estimate of future payments due under this agreement. Additional royalty expense, if any, will be recorded as incurred or as it becomes reasonably estimable. Therefore, the actual
royalty liability could exceed the recorded amount.

Expected future royalty payments are as follows:



|                       |  |   |            |  
|---------------------- |  | - | ---------- | -
|Year ending March 31,: |  |   |           
|2008                   |  | $ | 38,082     |  
|2009                   |  |   | 187,980    |  
|2010                   |  |   | 327,570    |  
|2011                   |  |   | 456,450    |  
|2012                   |  |   | 6,489,918  |  
|                       |  |   |            |  
|                       |  |   | 7,500,000  |  
|Unamortized discount   |  |   | (2,630,590 | )
|                       |  |   |            |  
|                       |  | $ | 4,869,410  |  
|                       |  |   |            |  
|Current                |  | $ | 35,217     |  
|Non-Current            |  |   | 4,834,193  |  
|                       |  |   |            |  
|                       |  | $ | 4,869,410  |  
|                       |  |   |            |  

11. Derivative Liabilities:

The following tabular presentation reflects the components of derivative financial instruments as of:



|                                                              |  |                          |            |                   |   |           
|------------------------------------------------------------- |  | ------------------------ | ---------- | ----------------- | - | ----------
|                                                              |  | March 31,2008(Unaudited) |            | September 30,2007
|Embedded derivative instruments, bifurcated                   |  | $                        | 155,939    |                   | $ | 486,300   
|Freestanding derivatives:                                     |  |                          |            |                   |   |           
|Warrants issued with convertible debt                         |  |                          | 1,648,646  |                   |   | 3,692,701 
|Warrants issued with notes payable                            |  |                          | 5,920,000  |                   |   | 4,928,000 
|Warrants issued with preferred stock                          |  |                          | 1,375,669  |                   |   |          
|Default and investment put options, Biovest                   |  |                          | 1,117,479  |                   |   | 565,677   
|Investment put option, Accentia (McKesson)                    |  |                          | 2,493,784  |                   |   | 1,141,574 
|Investment put option, Accentia (Preferred stock transaction) |  |                          | 3,324,664  |                   |   |          
|                                                              |  |                          |            |                   |   |           
|                                                              |  | $                        | 16,036,181 |                   | $ | 10,814,252
|                                                              |  |                          |            |                   |   |           



21



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



11. Derivative Liabilities (continued):



The following tabular presentation reflects the number of common shares into which the aforementioned derivatives are
indexed as of:



|                                                                                            |  |                           |  |                  
|------------------------------------------------------------------------------------------- |  | ------------------------- |  | -----------------
|                                                                                            |  | March 31, 2008(Unaudited) |  | September 30,2007
|Accentia Common shares indexed:                                                             |  |                           |  |                  
|Freestanding and embedded derivative                                                        |  | 12,722,601                |  | 4,385,844        
|Investment put                                                                              |  | 15,128,999                |  | 1,498,128        
|                                                                                            |  |                           |  |                  
|                                                                                            |  | 27,851,600                |  | 5,883,972        
|                                                                                            |  |                           |  |                  
|                                                                                            |  |                          
|                                                                                            |  | March 31, 2008(Unaudited) |  | September 30,2007
|Biovest Common shares indexed:                                                              |  |                           |  |                  
|Freestanding derivatives (warrants to purchase Biovest shares issued to Laurus by Accentia) |  | 10,000,000                |  | 10,000,000       
|                                                                                            |  |                           |  |                  

Derivative income (losses) in the accompanying statements of operations relate to the individual derivatives as
follows as of:



|                                            |  |                            |            |   |                           |   |           |                           |  |   |                           |   |  |   |           |  
|------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------- | - | --------- | ------------------------- |  | - | ------------------------- | - |  | - | --------- | -
|                                            |  | For The Three Months Ended |            |   | For The Six Months Ended  |  
|                                            |  | March 31, 2008(Unaudited)  |            |   | March 31, 2007(Unaudited) |   |           | March 31, 2008(Unaudited) |  |   | March 31, 2007(Unaudited) |  
|Embedded derivative instruments, bifurcated |  | $                          | 725,079    |   |                           | $ | 1,441,448 |                           |  | $ | 330,361                   |   |  | $ | 1,441,448 |  
|Freestanding derivatives:                   |  |                            |            |   |                           |   |           |                           |  |   |                           |   |  |   |           |  
|Warrants issued with convertible debentures |  |                            | 3,866,475  |   |                           |   | 3,031,518 |                           |  |   | 2,044,055                 |   |  |   | 2,367,395 |  
|Warrants issued with term note payable      |  |                            | (944,000   | ) |                           |   | 4,427,000 |                           |  |   | (992,000                  | ) |  |   | 4,427,000 |  
|Warrants issued with preferred stock        |  |                            | 2,339,075  |   |                           |   |          |                           |  |   | 2,339,075                 |   |  |   |          |  
|Default and investment put options, Biovest |  |                            | (30,177    | ) |                           |   | (73,298   | )                         |  |   | (551,802                  | ) |  |   | (59,106   | )
|Investment put option, Accentia             |  |                            | (1,836,255 | ) |                           |   |          |                           |  |   | (1,352,211                | ) |  |   |          |  
|Redemption put, Accentia                    |  |                            | (760,416   | ) |                           |   |          |                           |  |   | (760,416                  | ) |  |   |          |  
|                                            |  |                            |            |   |                           |   |           |                           |  |   |                           |   |  |   |           |  
|                                            |  | $                          | 3,359,781  |   |                           | $ | 8,826,668 |                           |  | $ | 1,057,062                 |   |  | $ | 8,176,737 |  
|                                            |  |                            |            |   |                           |   |           |                           |  |   |                           |   |  |   |           |  



22



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



12. Related party transactions:

On December 27, 2007, the Company entered into an Agreement & Consent with HCGII, an entity controlled by the Companys CEO, Francis E. ODonnell M.D., whereby the parties confirmed that
the Company had continued access to the full borrowing capability under its existing Line of Credit dated August 16, 2005, with HCGII through December 31, 2008 (Note 7).

On December 27, 2007, the Company issued warrants to purchase up to 175,000 shares of the Companys common stock at an exercise price of $2.91 per share to HCGII in consideration for previous extensions of
credit and the continued availability of the funds under the Companys existing Line of Credit dated August 16, 2005. These warrants were fully vested upon issuance and have a term of five years (Note 7).

Agreements with Biovest

Effective as of January 31, 2008, the
Company entered into a conditional commitment that once all obligations under the September 2006 Debentures and February 2007 Debentures have been paid or converted in full, the Company will guarantee, and pledge certain shares of Biovest owned by
the Company to collateralize, the indebtedness of Biovest to the Valens Funds.

On February 5, 2008, the Company was granted an option by Biovest
permitting the Company, in its discretion, to convert part or all of the principal and interest due to the Company on the date of the conversion under the intercompany debt owed by Biovest into shares of Biovest common stock at a conversion price of
$1.10 per share (the Conversion Price) subject to adjustment in the event of for certain recapitalizations or in the event of the sale of Biovest stock at prices below the Conversion Price. Biovest granted demand and piggyback
registration rights to the Company for the shares underlying this Conversion Option. On May 9, 2008, fully funded on May 13, 2008, as a result of a transaction described in Note 21 (Subsequent Events), the Conversion Price was adjusted to $0.50 per
share.

On February 5, 2008, the Company and Biovest entered into an amendment to the existing royalty agreement on sales of Biovests biologic
products, currently known as BiovaxID, to amend and clarify the calculation of royalty payments from any sublicense to specify that in all cases the royalty amounts will be calculated as a percentage of sales to customers/patients.

During the six months ended March 31, 2007, the following transactions occurred:



| |  |  | The Company and Biovest 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 the Company was the exclusive commercialization partner for Biovests biologic products and
was entitled to 49% of Biovests net profits from the sale of biologic products. Net revenue as used in the Biologics Commercialization Agreement included all receipts from the sale, license, sub-license, joint venture or other receipts from
each Biovest biologic product less all expenses including the costs of product acquisition, research, manufacture, sales, distribution, commercialization and governmental regulation. The new Royalty Agreement provides that the Company is no longer
Biovests exclusive commercialization partner and replaces the share of net profits with a 19.5% royalty based on net sales 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 the Company entering into this Royalty Agreement, Biovest agreed to issue to the Company five million new shares of Biovest common stock, representing the
independently appraised value to Biovest of the new agreement.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company and Biovest entered into a Termination Agreement under which the Company agreed to immediately terminate its absolute anti-dilution rights that were
granted to the Company pursuant to the First Right of Refusal Agreement dated June 16, 2003 with Biovest. In consideration of the Companys termination of the First Right of Refusal Agreement, Biovest issued to the Company five million
additional new shares of Biovest common stock.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



12. Related party transactions (continued):



| |  |  | The Company and Biovest entered into a Purchase Agreement whereby Biovest purchased the Companys 70.5% ownership interest in Biolender, LLC
(Biolender). Biolender is the entity that was formed by Biovest and the Company to participate in Biovests New Market Tax Credit enhanced financing that closed on April 25, 2006. Biolenders principal assets is a
promissory note in principal amount of $8.5 million which is anticipated to be repaid in approximately seven years when Biovest is required to repay the loan that it received as part of this New Market Tax Credit enhanced financing. In consideration
of the sale of this interest in Biolender, Biovest agreed to issue to the Company ten million additional new shares of Biovest common stock, representing the negotiated value of the purchased interest.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In order to consummate the foregoing transactions and other transactions as discussed in Note 14, the Company was required to obtain the consent of its senior
lender, Laurus, under the Companys loan agreements with Laurus. In consideration for providing such consent, the Company entered into an agreement with Laurus pursuant to which Laurus consented to certain transactions and the Company issued to
Laurus a warrant to purchase 10 million outstanding shares of Biovest common stock owned by the Company at an exercise price of $.01 per share. The warrant expires in October 2012.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The $9,428,000 fair value of the warrant has been recorded as Loss on financing transaction $8.8 million, and Loss on sale of assets $0.6 million in the
statement of operations for the six months ended March 31, 2007.

Notes payable, related party:

On September 11, 2007, Biovest issued two unsecured promissory notes to two directors of Biovest in the amount of $0.2 million. These loans bear interest at prime
plus 2.0% (9.25% at December 31, 2007) and mature September 10, 2008. The notes can be prepaid at any time without penalty and are subordinated to Biovests outstanding loans to Laurus and the Valens Funds. Biovest issued five-year
warrants to purchase 909,090 shares of the Companys common stock at $1.10 per share in conjunction with these loans. In accordance with APB 14: Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, proceeds
were allocated to debt and stockholders equity based on the relative fair values of the debt and the warrants. The carrying value of these notes as of March 31, 2008 is $166,000. The remaining discount of $45,000 to these notes payable
will be accreted using the effective interest method through September 2008. Interest expense of approximately $30,000 was incurred on these notes during the six months ended March 31, 2008.

On September 26, 2007, Biovest issued an unsecured promissory note to a shareholder of the Company in the amount of $46,000. This loan bears interest at prime plus
2.0% (9.75% at March 31, 2008) and is payable May 31, 2008. This note is subordinated to Biovests outstanding loan to Laurus and the Valens Funds. Biovest issued five-year warrants to purchase 25,099 shares of Biovests common
stock at $1.10 per share in conjunction with this loan. In accordance with APB 14: Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, proceeds were allocated to debt and stockholders equity based on the
relative fair values of the debt and the warrants.

On October 12, 2007, Biovest issued an unsecured promissory note to a director of Biovest in the
amount of $300,000. This loan bears interest at prime plus 2.0% (9.75% at March 31, 2008) and is payable October 11, 2008. Biovest issued warrants to purchase 2,727,270 shares of Biovests common stock at $1.10 per share in
conjunction with this loan. Proceeds from the loan were allocated to debt and stockholders equity based on the relative fair values of the debt and the warrants. The carrying value of this note as of March 31, 2008 is approximately
$174,000. Interest expense of approximately $72,000 was incurred on this note during the six months ended March 31, 2008.



24



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



13. Loss on extinguishment of debt:

On October 31, 2007, Biovest executed an amendment agreement (the Amendment) with its senior lender, Laurus, to defer payments of principal and interest on its $7.8 million loan until January 2008, at
which point adjusted principal payments of $0.3 million per month were to commence. Interest on this loan will continue to accrue at prime plus 2.0% and will be due monthly beginning January 2008. As consideration for the forbearance Biovest will
pay to Laurus an additional $1.8 million upon the maturity of the note, March 31, 2009.

Biovest applied the provisions of EITF 96-19, Debtors
Accounting for Modification or Exchange of Debt Instruments to the Amendment. EITF 96-19 provides that substantial modifications of terms should be treated in the same manner as an extinguishment of debt and thus accounted for under the
provisions of SFAS 125. Biovest determined that the modification of terms of the $7.8 million loan from Laurus in addition to the $1.8 million payment due upon maturity under the Amendment constituted a substantial modification of terms and thus
treated the Amendment as an extinguishment of debt. Biovest incurred a $1.4 million loss on extinguishment of debt as a result of this transaction which is included in other income (expense) in the accompanying condensed consolidated statement of
operations for the six months ended March 31, 2008.

See Note 8 regarding $383,895 debt extinguishment loss on Pulaski debt.

14. Preferred stock:

In January 2008, the Company entered
into definitive agreements and closed a private placement (the January 2008 Private Placement) of $8.7 million of Convertible Preferred stock (the Preferred Stock) (8,950 shares at $1,000 per share stated value). The net
proceeds after placement agent fees of approximately $0.6 million, but before other expenses associated with the transaction, were approximately $8.1 million. In connection with the January 2008 Private Placement, the Company also issued to the
Placement Agent warrants to purchase an aggregate of 163,464 shares of the Companys common stock at an exercise price of $2.67 per share. The Company has used the proceeds of the January 2008 Private Placement as working capital, including
supporting drug development, regulatory strategies and marketing plans.

The Preferred Stock is convertible at any time at the option of the holder into
shares of the Companys common stock at $2.67 per share (an aggregate of 3,269,283 common shares at March 31, 2008), subject to adjustment for stock splits, stock dividends, and the like. In the event that the Company issues or grants in
the future any rights to purchase shares of the Companys common stock, or other security convertible into the Companys common stock, for an effective per share price less than the conversion price then in effect, the conversion price of
all unconverted Preferred Stock will be decreased to equal such lower price. This adjustment to the conversion price or exchange price for future stock issuances will not apply to certain exempt issuances, including stock issuances pursuant to
employee stock option plans and strategic transactions. The Preferred Stock has liquidation preferences ahead of the holders of common stock and the holders of junior preferred stock in the event of liquidation or bankruptcy up to the amount of the
Purchasers purchase price for the Preferred Stock. The Company has the right to force the conversion of the Preferred Stock into shares of its common stock if the Companys common stock trades at 250% of the purchase price for a stated
time and certain defined conditions are met. All remaining unconverted Preferred Stock will be redeemed by cash payment at the stated value on the maturity date of March 31, 2011 provided the convertible debentures issued to certain investors
in September 2006 and February 2007 (the Debentures) are no longer outstanding. Commencing on January 18, 2009, the Company has the option to redeem some or all of the outstanding Preferred Stock upon notice by payment of a
cash redemption price equal to 130% of the then-applicable conversion price and providing the Debentures are then converted, redeemed, or otherwise retired or the consent of the holders is obtained. Upon any liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary (a Liquidation), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value for each share of Preferred
Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be
ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

As a part of the January 2008 Private Placement, the Company issued short-term warrants (the Short-Term Warrants) to the purchasers of the Preferred Stock giving them the right to purchase up to 3,269,283
shares of the Companys common stock at an exercise price of $2.67 per share. These Short-Term Warrants expired April 23, 2008.



25



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



14. Preferred stock (continued):



In addition, as a part of the January 2008 Private Placement, the Company issued long-term warrants (the
Long-Term Warrants) to the purchasers of the Preferred Stock giving them the right to purchase up to 1,634,639 shares of the Companys common stock at an exercise price of $2.67 per share. The Long-Term Warrants will expire on
January 17, 2014. In the event that the Company in the future issues or grants any rights to purchase any of the Companys common stock, or other security convertible into the Companys common stock, for a per share price less than
the exercise price then in effect, the exercise price of the Long-Term Warrants will be reduced to equal such lower price. The foregoing adjustments to the exercise price for the Companys Long-Term Warrants for future stock issues will not
apply to certain exempt issuances, including issuances pursuant to employee stock option plans and strategic transactions. In the event that any proceeds are realized by the Company upon the exercise of Short-Term Warrants described herein, the
Placement Agent shall receive an additional placement fee in amount equal to 7% of any such Long-Term Warrant proceeds.

Other key provisions of the
January 2008 Private Placement:



| |  |  | The Preferred Stock has no voting rights
| | - |  | ----------------------------------------



| |  |  | Triggering events that would cause mandatory conversions include the failure of the initial Conversion Shares Registration Statement to be declared effective by the
Commission on or prior to the 120th day after the Original Issue Date (the registration statement was declared effective on April 17, 2008); the effectiveness of the Conversion Shares Registration Statement lapses for a period of more than 20
consecutive Trading Days or 30 non-consecutive Trading Days during any 12 month period and prior to such the end of any such period; fewer than all the Conversion Shares shall being freely saleable pursuant to Rule 144; the Company shall fail to
deliver certificates representing Conversion Shares issuable upon a conversion; the Corporation shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In within five calendar days after notice is delivered
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | So long as any shares of Preferred Stock are outstanding, unless the holders of at least 67% of stated value of the then outstanding shares of Preferred Stock shall
have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly amend its certificate of incorporation, bylaws or
other charter documents so as to materially and adversely affect any rights of any Holder; repay, repurchase or offer to repay, repurchase or otherwise acquire shares of its Common Stock, Common Stock Equivalents or Junior Securities, except for the
Conversion Shares to the extent permitted or required under the Transaction Documents or as otherwise permitted by the Transaction Documents; enter into any agreement or understanding with respect to any of the foregoing; or pay cash dividends or
distributions on Junior Securities of the Company.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Preferred Stock was not within the scope of SFAS 150 because the security may be
converted into an equity instrument at the option of the holder. The Preferred Stock is not considered mandatorily redeemable until the conversion option expires since the conversion option could be exercised prior to the redemption date. As such,
the Preferred Stock has been classified in the mezzanine section of the balance sheet in accordance with Securities and Exchange Commission Accounting Series Release 268.

The Preferred Stock embodies certain features, including an embedded conversion feature, which are defined as derivative financial instruments under SFAS 133. Consideration of bifurcation and liability classification
of the derivatives was, in part, based upon an overall conclusion that the preferred stock was more akin to a debt instrument, rather than an equity instrument, following the guidance in EITF D-109. Accordingly, the conversion feature was evaluated
under SFAS 133.11(a), and the result of that analysis was that the embedded conversion feature does not require bifurcation. In addition, the preferred stock embodied certain cash-settled contingent redemption features (that is, Put Features) and
call options that were not clearly and closely related to the host contract and, accordingly, required bifurcation and classification as derivative liabilities.



26



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



14. Preferred stock (continued):



The warrants issued in connection with the January 2008 Private Placement are derivative financial instruments. The
warrants issued to the Investors and the Placement Agent did not meet all of the requisite conditions for equity classification, as provided in paragraphs 12-32 of EITF 00-19 Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Companys Own Stock because the contracts extended firm registration rights to these investors and placement agents without an economic alternative in the event that the Company is not able to deliver registered
shares. Accordingly, the warrants are carried as derivative liabilities, at fair value.

The following table illustrates details of the sale of the
Preferred Stock and how the net proceeds arising from the January 2008 Private Placement financing was allocated on the financing inception date:



|                                                                                                                                |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------- | -
|Gross cash proceeds                                                                                                             |  | $ | 8,729,000  |  
|Financing fees (paid in cash)                                                                                                   |  |   | (641,040   | )
|                                                                                                                                |  |   |            |  
|Net cash proceeds                                                                                                               |  | $ | 8,087,960  |  
|                                                                                                                                |  |   |            |  
|                                                                                                                                | 
|Allocation of proceeds:                                                                                                         |  |   |            |  
|Series A-1 Preferred Stock                                                                                                      |  | $ |           |  
|Paid-in capital (beneficial conversion feature), net of $223,873 deferred financing fees attributable to the conversion
feature |  |   | (2,456,495 | )
|Derivative liabilities:                                                                                                         |  |   |            |  
|Investor Warrants liability                                                                                                     |  |   | (4,585,503 | )
|Agent Warrants liability                                                                                                        |  |   | (230,362   | )
|Put liability                                                                                                                   |  |   | (3,298,330 | )
|Deferred financing cost                                                                                                         |  |   | 532,992    |  
|Retained Earnings (preferred dividend)                                                                                          |  |   | 114,537    |  
|Day-one derivative loss                                                                                                         |  |   | 1,835,201  |  
|                                                                                                                                |  |   |            |  
|Total                                                                                                                           |  | $ | (8,087,960 | )
|                                                                                                                                |  |   |            |  



27



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



14. Preferred stock (continued):



Total financing fees associated with the January 2008 Private Placement financing are as follows:



|                                          |  |   |        
|----------------------------------------- |  | - | -------
|Financing fees paid in cash               |  | $ | 641,040
|Financing fees (placement agent warrants) |  |   | 230,362
|                                          |  |   |        
|                                          |  | $ | 871,402
|                                          |  |   |        

The following table illustrates the allocation of financing costs associated with the January 2008 Private
Placement financing (allocated based upon the relative fair values of the instruments):



|                                                                                    |  |   |        
|----------------------------------------------------------------------------------- |  | - | -------
|Paid-in capital (attributable to conversion feature)                                |  | $ | 223,873
|Deferred financing costs (attributable to derivative liabilities)                   |  |   | 532,992
|Retained earnings (attributable to preferred stock and accounted for as a dividend) |  |   | 114,537
|                                                                                    |  |   |        
|                                                                                    |  | $ | 871,402
|                                                                                    |  |   |        

The following table illustrates the activity with respect to the January 2008 Private Placement financing since
inception (allocated based upon the relative fair value of the instruments):



|                                                 |  |   |        
|------------------------------------------------ |  | - | -------
|Initial allocation of Series A-1 Preferred Stock |  | $ |       
|Accretion to redemption value                    |  |   | 111,963
|                                                 |  |   |        
|Balance at end of period                         |  | $ | 111,963
|                                                 |  |   |        

15. Stockholders Equity:

In connection with the January 2008 Private Placement, the Company and the purchasers of the Preferred Stock entered into a Registration Rights Agreement under which the Company filed a registration statement with the
SEC covering the resale a portion of the shares of Companys common stock issuable pursuant to the Preferred Stock and warrants. On April 17, 2008, the registration statement covering the Preferred Stock and warrants was declared effective
by the SEC.

Stock options and warrants

The Company
provides for three option plans, the 2003 Stock Option Plan (the 2003 Plan), the 2005 Equity Incentive Plan (the 2005 Plan), and the 2008 Equity Incentive Plan (the 2008 Plan). All of these plans provide for the
issuance of qualified and non-qualified options as those terms are defined by the Internal Revenue Code.

The 2003 Plan, as amended, provides for the
issuance of 3,500,000 shares of common stock, and 762,571 shares of Series D Preferred Stock. At September 30, 2007, all Series D Preferred options have been converted into common share options. All options issued, pursuant to the 2003 Plan,
cannot have a term greater than ten years. Options granted under this plan vest over periods established in the option agreement. As of March 31, 2008, 758,032 options are outstanding under the 2003 Plan.

The 2005 Plan provides for the issuance of 3,000,000 shares of common stock. All options issued, pursuant to the 2005 Plan, cannot have a term greater than ten years.
Options granted under this plan vest over periods established in the option agreement. As of March 31, 2008, 1,811,446 options are outstanding under the 2005 Plan. The Company may, at any time, amend or modify the Plan without limitation.

On November 29, 2007 and effective as of December 31, 2007, the Companys Board of Directors adopted the Accentia Biopharmaceuticals, Inc.
2008 Plan, which is intended to be a Qualified Plan. The 2008 Plan was ratified by vote of the Companys shareholders at the Companys 2008 Annual Meeting on February 28, 2008. As of March 31, 2008, 1,946,167 options are
outstanding under the 2008 Plan.



28



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



15. Stockholders Equity (continued):



Stock options and warrants issued, terminated/forfeited and outstanding during the six months ended March 31,
2008 (unaudited) are as follows:



|                                                     |  |            |   |  |                              
|---------------------------------------------------- |  | ---------- | - |  | -----------------------------
|                                                     |  | Shares     |   |  | AverageExerciseprice pershare
|Options and warrants outstanding, September 30, 2007 |  | 18,767,692 |   |  | 3.64                         
|Activity for the six months ended March 31, 2008:    |  |            |   |  |                              
|Options issued                                       |  | 2,145,931  |   |  | 2.68                         
|Warrants issued                                      |  | 11,161,916 |   |  | 2.67                         
|Options terminated/forfeited                         |  | (159,809   | ) |  | 3.24                         
|Warrants terminated/forfeited                        |  | (2,568,474 | ) |  | 2.67                         
|Warrants exercised                                   |  | (1,738,328 | ) |  | 2.67                         
|                                                     |  |            |   |  |                              
|Options and warrants outstanding, March 31, 2008     |  | 27,608,928 |   |  | 3.14                         
|                                                     |  |            |   |  |                              
|Options outstanding                                  |  | 4,515,645  |   |  | 3.43                         
|Warrants outstanding                                 |  | 23,093,283 |   |  | 3.09                         
|                                                     |  |            |   |  |                              
|                                                     |  | 27,608,928 |   |  |                              
|                                                     |  |            |   |  |                              

The weighted average grant date fair values of stock options and warrants granted during the six months ended
March 31, 2008 (unaudited) were as follows:



|                                |  |                                       |      |          |   |     
|------------------------------- |  | ------------------------------------- | ---- | -------- | - | ----
|                                |  | Weighted AverageGrant Date Fair Value
|                                |  | Options                               |      | Warrants
|Six months ended March 31, 2008 |  | $                                     | 1.31 |          | $ | 1.25

A summary of the status of the Companys nonvested stock options as of March 31, 2008, and changes
during the six months then ended, is summarized as follows:



|                                |  |            |   |  |                                        |      |                |  
|------------------------------- |  | ---------- | - |  | -------------------------------------- | ---- | -------------- | -
|Nonvested Shares                |  | Shares     |   |  | Weighted-Average Grant-Date Fair Value |      | IntrinsicValue
|Nonvested at September 30, 2007 |  | 928,466    |   |  |                                        |      |                |  
|Granted                         |  | 2,145,931  |   |  |                                        |      |                |  
|Vested                          |  | (1,069,596 | ) |  |                                        |      |                |  
|Forfeited                       |  | (88,274    | ) |  |                                        |      |                |  
|                                |  |            |   |  |                                        |      |                |  
|Nonvested at March 31, 2008     |  | 1,916,527  |   |  | $                                      | 1.55 |                | 
|                                |  |            |   |  |                                        |      |                |  

The total unearned compensation cost of $3,117,391 relating to the 1,916,527 nonvested options as of
March 31, 2008 will be recognized over a weighted average period of two years.



29



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



16. Operational results for Biovest (unaudited):



|                                                                     |  |                                      |            |   |                            |   |            |         |  |   |                            |   |  |   |            |  
|-------------------------------------------------------------------- |  | ------------------------------------ | ---------- | - | -------------------------- | - | ---------- | ------- |  | - | -------------------------- | - |  | - | ---------- | -
|                                                                     |  | For the three months ended March 31, |           
|                                                                     |  | 2008                                 |            |   | 2007                       |  
|                                                                     |  | Biovest                              |            |   | ConsolidatedwithoutBiovest |   |            | Biovest |  |   | ConsolidatedwithoutBiovest |  
|Net sales                                                            |  | $                                    | 1,555,630  |   |                            | $ | 2,605,788  |         |  | $ | 1,551,817                  |   |  | $ | 3,005,966  |  
|Cost of sales                                                        |  |                                      | 808,203    |   |                            |   | 675,070    |         |  |   | 851,144                    |   |  |   | 561,030    |  
|                                                                     |  |                                      |            |   |                            |   |            |         |  |   |                            |   |  |   |            |  
|Gross margin                                                         |  |                                      | 747,427    |   |                            |   | 1,930,718  |         |  |   | 700,673                    |   |  |   | 2,444,936  |  
|Operating expenses                                                   |  |                                      | 2,746,507  |   |                            |   | 7,466,227  |         |  |   | 5,019,344                  |   |  |   | 9,291,455  |  
|                                                                     |  |                                      |            |   |                            |   |            |         |  |   |                            |   |  |   |            |  
|Loss from operations                                                 |  |                                      | (1,999,080 | ) |                            |   | (5,535,509 | )       |  |   | (4,318,671                 | ) |  |   | (6,846,519 | )
|Interest income (expense)                                            |  |                                      | (1,935,169 | ) |                            |   | (2,206,040 | )       |  |   | (1,544,342                 | ) |  |   | (1,152,191 | )
|Other income (expense)                                               |  |                                      | (296,319   | ) |                            |   | 202,248    |         |  |   | 7,831                      |   |  |   | (3,499,639 | )
|Derivative gain (loss)                                               |  |                                      | (30,177    | ) |                            |   | 3,389,958  |         |  |   | (73,298                    | ) |  |   | 8,899,966  |  
|Non-controlling interest in earnings from variable interest entities |  |                                      | 108,655    |   |                            |   | 8,750      |         |  |   | 478,289                    |   |  |   |           |  
|Absorption of prior losses against minority interest                 |  |                                      |           |   |                            |   |           |         |  |   |                           |   |  |   | 7,500      |  
|                                                                     |  |                                      |            |   |                            |   |            |         |  |   |                            |   |  |   |            |  
|Net loss                                                             |  |                                      | (4,152,090 | ) |                            |   | (4,140,593 | )       |  |   | (5,450,191                 | ) |  |   | (2,590,883 | )
|Dividends                                                            |  |                                      |           |   |                            |   | (226,499   | )       |  |   |                           |   |  |   |           |  
|                                                                     |  |                                      |            |   |                            |   |            |         |  |   |                            |   |  |   |            |  
|Loss attributable to common stockholders                             |  |                                      | (4,152,090 | ) |                            |   | (4,367,092 | )       |  |   | (5,450,191                 | ) |  |   | (2,590,883 | )
|                                                                     |  |                                      |            |   |                            |   |            |         |  |   |                            |   |  |   |            |  
|Weighted average shares outstanding, basic and diluted               |  |                                      | 43,681,670 |   |                            |   | 43,681,670 |         |  |   | 32,815,821                 |   |  |   | 32,815,821 |  
|Loss attributable to common stockholders per common share            |  |                                      | (0.10      | ) |                            |   | (0.10      | )       |  |   | (0.17                      | ) |  |   | (0.08      | )



30



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



16. Operational results for Biovest (unaudited) (continued):



|                                                                     |  |                                    |            |   |                            |   |             |         |  |   |                            |   |  |   |             |  
|-------------------------------------------------------------------- |  | ---------------------------------- | ---------- | - | -------------------------- | - | ----------- | ------- |  | - | -------------------------- | - |  | - | ----------- | -
|                                                                     |  | For the six months ended March 31, |           
|                                                                     |  | 2008                               |            |   | 2007                       |  
|                                                                     |  | Biovest                            |            |   | ConsolidatedwithoutBiovest |   |             | Biovest |  |   | ConsolidatedwithoutBiovest |  
|Net sales                                                            |  | $                                  | 2,814,660  |   |                            | $ | 5,682,823   |         |  | $ | 2,878,926                  |   |  | $ | 7,560,601   |  
|Cost of sales                                                        |  |                                    | 1,490,711  |   |                            |   | 1,701,184   |         |  |   | 1,617,236                  |   |  |   | 1,420,230   |  
|                                                                     |  |                                    |            |   |                            |   |             |         |  |   |                            |   |  |   |             |  
|Gross margin                                                         |  |                                    | 1,323,949  |   |                            |   | 3,981,639   |         |  |   | 1,261,690                  |   |  |   | 6,140,371   |  
|Operating expenses                                                   |  |                                    | 4,581,613  |   |                            |   | 16,752,577  |         |  |   | 19,637,761                 |   |  |   | 8,033,709   |  
|                                                                     |  |                                    |            |   |                            |   |             |         |  |   |                            |   |  |   |             |  
|Loss from operations                                                 |  |                                    | (3,257,664 | ) |                            |   | (12,770,938 | )       |  |   | (18,376,071                | ) |  |   | (1,893,338  | )
|Interest income (expense)                                            |  |                                    | (2,718,454 | ) |                            |   | (14,376,507 | )       |  |   | (3,584,034                 | ) |  |   | (2,335,203  | )
|Other income (expense)                                               |  |                                    | (1,565,857 | ) |                            |   | 272,740     |         |  |   | (7,860,065                 | ) |  |   | (13,565,303 | )
|Derivative gain (loss)                                               |  |                                    | (551,803   | ) |                            |   | 1,608,865   |         |  |   | (59,106                    | ) |  |   | 8,235,843   |  
|Non-controlling interest in earnings from variable interest entities |  |                                    | 207,585    |   |                            |   | 17,500      |         |  |   | 478,289                    |   |  |   |            |  
|Absorption of prior losses against minority interest                 |  |                                    |           |   |                            |   |            |         |  |   |                           |   |  |   | 276,901     |  
|                                                                     |  |                                    |            |   |                            |   |             |         |  |   |                            |   |  |   |             |  
|Net loss                                                             |  |                                    | (7,886,193 | ) |                            |   | (25,248,340 | )       |  |   | (29,400,987                | ) |  |   | (9,281,100  | )
|Dividends                                                            |  |                                    |           |   |                            |   | (226,499    | )       |  |   |                           |   |  |   |            |  
|                                                                     |  |                                    |            |   |                            |   |             |         |  |   |                            |   |  |   |             |  
|Loss attributable to common stockholders                             |  |                                    | (7,886,193 | ) |                            |   | (25,474,839 | )       |  |   | (29,400,987                | ) |  |   | (9,281,100  | )
|                                                                     |  |                                    |            |   |                            |   |             |         |  |   |                            |   |  |   |             |  
|Weighted average shares outstanding, basic and diluted               |  |                                    | 42,661,240 |   |                            |   | 42,661,240  |         |  |   | 32,262,128                 |   |  |   | 32,262,128  |  
|Loss attributable to common stockholders per common share            |  |                                    | (0.18      | ) |                            |   | (0.60       | )       |  |   | (0.91                      | ) |  |   | (0.29       | )



31



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



17. Segment information:

The Company defines segment operating results as earnings (loss) before general and administrative costs, interest expense, interest income, other income, discontinued operations and income taxes.

Segment information for the three months ended March 31, 2008 is as follows:



|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|------------------------------------------------------------------ |  | ------------------------------------- | ---------- | - | ------------------------ | - | ---------- | ----- |  | - | ---------- | -
|                                                                   |  | BiopharmaceuticalProductsand Services |            |   | SpecialtyPharmaceuticals |   |            | Total | 
|Net sales:                                                         |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Products                                                           |  | $                                     | 840,334    |   |                          | $ | 259,853    |       |  | $ | 1,100,187  |  
|Services                                                           |  |                                       | 3,061,231  |   |                          |   |           |       |  |   | 3,061,231  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Total net sales                                                    |  |                                       | 3,901,565  |   |                          |   | 259,853    |       |  |   | 4,161,418  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|                                                                   |  |                                       |           
|Cost of sales:                                                     |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Products                                                           |  |                                       | 500,027    |   |                          |   | 303,803    |       |  |   | 803,830    |  
|Services                                                           |  |                                       | 679,443    |   |                          |   |           |       |  |   | 679,443    |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Total cost of sales                                                |  |                                       | 1,179,470  |   |                          |   | 303,803    |       |  |   | 1,483,273  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Gross margin                                                       |  |                                       | 2,722,095  |   |                          |   | (43,950    | )     |  |   | 2,678,145  |  
|Sales and marketing                                                |  |                                       | 66,164     |   |                          |   | 1,686,875  |       |  |   | 1,753,039  |  
|Research and development                                           |  |                                       | 2,656,686  |   |                          |   |           |       |  |   | 2,656,686  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Segment loss                                                       |  |                                       | (755       | ) |                          |   | (1,730,825 | )     |  |   | (1,731,580 | )
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|General and administrative expenses                                |  |                                       |            |   |                          |   |            |       |  |   | (5,803,009 | )
|Other expense                                                      |  |                                       |            |   |                          |   |            |       |  |   | (875,499   | )
|Non-controlling interest in losses from variable interest entities |  |                                       |            |   |                          |   |            |       |  |   | 117,405    |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Net loss                                                           |  |                                       |            |   |                          |   |            |       |  | $ | (8,292,683 | )
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Total assets                                                       |  | $                                     | 25,897,900 |   |                          | $ | 3,140,300  |       |  | $ | 29,038,200 |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Goodwill                                                           |  | $                                     | 1,193,437  |   |                          | $ |           |       |  | $ | 1,193,437  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  



32



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



17. Segment information (continued):



Segment information for the three months ended March 31, 2007 is as follows:



|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|------------------------------------------------------------------ |  | ------------------------------------- | ---------- | - | ------------------------ | - | ---------- | ----- |  | - | ---------- | -
|                                                                   |  | BiopharmaceuticalProductsand Services |            |   | SpecialtyPharmaceuticals |   |            | Total | 
|Net sales:                                                         |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Products                                                           |  | $                                     | 700,137    |   |                          | $ | 865,729    |       |  | $ | 1,565,866  |  
|Services                                                           |  |                                       | 2,991,918  |   |                          |   |           |       |  |   | 2,991,918  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Total net sales                                                    |  |                                       | 3,692,055  |   |                          |   | 865,729    |       |  |   | 4,557,784  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|                                                                   |  |                                       |           
|Cost of sales:                                                     |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Products                                                           |  |                                       | 455,780    |   |                          |   | 113,501    |       |  |   | 569,281    |  
|Services                                                           |  |                                       | 842,893    |   |                          |   |           |       |  |   | 842,893    |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Total cost of sales                                                |  |                                       | 1,298,673  |   |                          |   | 113,501    |       |  |   | 1,412,174  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Gross margin                                                       |  |                                       | 2,393,382  |   |                          |   | 752,228    |       |  |   | 3,145,610  |  
|Sales and marketing                                                |  |                                       | 34,079     |   |                          |   | 2,224,553  |       |  |   | 2,258,632  |  
|Research and development                                           |  |                                       | 5,548,911  |   |                          |   |           |       |  |   | 5,548,911  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Segment loss                                                       |  |                                       | (3,189,608 | ) |                          |   | (1,472,325 | )     |  |   | (4,661,933 | )
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|General and administrative expenses                                |  |                                       |            |   |                          |   |            |       |  |   | (6,503,256 | )
|Other income                                                       |  |                                       |            |   |                          |   |            |       |  |   | 2,645,826  |  
|Non-controlling interest in losses from variable interest entities |  |                                       |            |   |                          |   |            |       |  |   | 478,289    |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Net loss                                                           |  |                                       |            |   |                          |   |            |       |  | $ | (8,041,074 | )
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Total assets                                                       |  | $                                     | 46,446,176 |   |                          | $ | 5,221,290  |       |  | $ | 51,667,466 |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  
|Goodwill                                                           |  | $                                     | 1,193,437  |   |                          | $ |           |       |  | $ | 1,193,437  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |            |  



33



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



17. Segment information (continued):



Segment information for the six months ended March 31, 2008 is as follows:



|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|------------------------------------------------------------------ |  | ------------------------------------- | ---------- | - | ------------------------ | - | ---------- | ----- |  | - | ----------- | -
|                                                                   |  | BiopharmaceuticalProductsand Services |            |   | SpecialtyPharmaceuticals |   |            | Total | 
|Net sales:                                                         |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Products                                                           |  | $                                     | 1,615,594  |   |                          | $ | 1,017,006  |       |  | $ | 2,632,600   |  
|Services                                                           |  |                                       | 5,864,883  |   |                          |   |           |       |  |   | 5,864,883   |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Total net sales                                                    |  |                                       | 7,480,477  |   |                          |   | 1,017,006  |       |  |   | 8,497,483   |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|                                                                   |  |                                       |           
|Cost of sales:                                                     |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Products                                                           |  |                                       | 931,593    |   |                          |   | 795,114    |       |  |   | 1,726,707   |  
|Services                                                           |  |                                       | 1,465,188  |   |                          |   |           |       |  |   | 1,465,188   |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Total cost of sales                                                |  |                                       | 2,396,781  |   |                          |   | 795,114    |       |  |   | 3,191,895   |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Gross margin                                                       |  |                                       | 5,083,696  |   |                          |   | 221,892    |       |  |   | 5,305,588   |  
|Sales and marketing                                                |  |                                       | 105,723    |   |                          |   | 3,373,869  |       |  |   | 3,479,592   |  
|Research and development                                           |  |                                       | 6,472,286  |   |                          |   |           |       |  |   | 6,472,286   |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Segment loss                                                       |  |                                       | (1,494,313 | ) |                          |   | (3,151,977 | )     |  |   | (4,646,290  | )
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|General and administrative expenses                                |  |                                       |            |   |                          |   |            |       |  |   | (11,382,312 | )
|Other expense                                                      |  |                                       |            |   |                          |   |            |       |  |   | (17,331,016 | )
|Non-controlling interest in losses from variable interest entities |  |                                       |            |   |                          |   |            |       |  |   | 225,085     |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Net loss                                                           |  |                                       |            |   |                          |   |            |       |  | $ | (33,134,533 | )
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Total assets                                                       |  | $                                     | 25,897,900 |   |                          | $ | 3,140,300  |       |  | $ | 29,038,200  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Goodwill                                                           |  | $                                     | 1,193,437  |   |                          | $ |           |       |  | $ | 1,193,437   |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  



34



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



17. Segment information (continued):



Segment information for the six months ended March 31, 2007 is as follows:



|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|------------------------------------------------------------------ |  | ------------------------------------- | ---------- | - | ------------------------ | - | ---------- | ----- |  | - | ----------- | -
|                                                                   |  | BiopharmaceuticalProductsand Services |            |   | SpecialtyPharmaceuticals |   |            | Total | 
|Net sales:                                                         |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Products                                                           |  | $                                     | 1,529,598  |   |                          | $ | 2,972,284  |       |  | $ | 4,501,882   |  
|Services                                                           |  |                                       | 5,937,645  |   |                          |   |           |       |  |   | 5,937,645   |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Total net sales                                                    |  |                                       | 7,467,243  |   |                          |   | 2,972,284  |       |  |   | 10,439,527  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|                                                                   |  |                                       |           
|Cost of sales:                                                     |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Products                                                           |  |                                       | 854,517    |   |                          |   | 549,504    |       |  |   | 1,404,021   |  
|Services                                                           |  |                                       | 1,633,445  |   |                          |   |           |       |  |   | 1,633,445   |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Total cost of sales                                                |  |                                       | 2,487,962  |   |                          |   | 549,504    |       |  |   | 3,037,466   |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|                                                                   |  |                                       |           
|Gross margin                                                       |  |                                       | 4,979,281  |   |                          |   | 2,422,780  |       |  |   | 7,402,061   |  
|Sales and marketing                                                |  |                                       | 63,535     |   |                          |   | 4,372,551  |       |  |   | 4,436,086   |  
|Research and development                                           |  |                                       | 10,028,576 |   |                          |   |           |       |  |   | 10,028,576  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Segment loss                                                       |  |                                       | (5,112,830 | ) |                          |   | (1,949,771 | )     |  |   | (7,062,601  | )
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|                                                                   |  |                                       |           
|General and administrative expenses                                |  |                                       |            |   |                          |   |            |       |  |   | (13,206,808 | )
|Other expense                                                      |  |                                       |            |   |                          |   |            |       |  |   | (18,890,967 | )
|Non-controlling interest in losses from variable interest entities |  |                                       |            |   |                          |   |            |       |  |   | 478,289     |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Net loss                                                           |  |                                       |            |   |                          |   |            |       |  | $ | (38,682,087 | )
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Total assets                                                       |  | $                                     | 46,446,176 |   |                          | $ | 5,221,290  |       |  | $ | 51,667,466  |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  
|Goodwill                                                           |  | $                                     | 1,193,437  |   |                          | $ |           |       |  | $ | 1,193,437   |  
|                                                                   |  |                                       |            |   |                          |   |            |       |  |   |             |  



35



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



17. Segment information (continued):



Domestic and foreign operations



|             |  |                                   |             |   |                                   |   |           |  |   |             |   |  |                       |             |       |  |   |           |  |   |             |  
|------------ |  | --------------------------------- | ----------- | - | --------------------------------- | - | --------- |  | - | ----------- | - |  | --------------------- | ----------- | ----- |  | - | --------- |  | - | ----------- | -
|             |  | Three months ended March 31, 2008 |             |   | Three months ended March 31, 2007 |  
|             |  | Domestic                          |             |   | International(Europe)             |   | Total     |  |   | Domestic    |   |  | International(Europe) |             | Total | 
|Net sales    |  | $                                 | 3,029,666   |   |                                   | $ | 1,131,752 |  | $ | 4,161,418   |   |  | $                     | 3,423,792   |       |  | $ | 1,133,992 |  | $ | 4,557,784   |  
|Net loss     |  |                                   | (8,602,253  | ) |                                   |   | 309,570   |  |   | (8,292,683  | ) |  |                       | (8,090,871  | )     |  |   | 49,797    |  |   | (8,041,074  | )
|Total Assets |  |                                   | 26,502,145  |   |                                   |   | 2,536,055 |  |   | 29,038,200  |   |  |                       | 49,163,369  |       |  |   | 2,504,097 |  |   | 51,667,466  |  
|Goodwill     |  |                                   | 893,000     |   |                                   |   | 300,437   |  |   | 1,193,437   |   |  |                       | 893,000     |       |  |   | 300,437   |  |   | 1,193,437   |  
|             |  |                                  
|             |  | Six months ended March 31, 2008   |             |   | Six months ended March 31, 2007   |  
|             |  | Domestic                          |             |   | International(Europe)             |   | Total     |  |   | Domestic    |   |  | International(Europe) |             | Total | 
|Net sales    |  | $                                 | 6,227,489   |   |                                   | $ | 2,269,994 |  | $ | 8,497,483   |   |  | $                     | 8,027,693   |       |  | $ | 2,411,834 |  | $ | 10,439,527  |  
|Net loss     |  |                                   | (33,314,671 | ) |                                   |   | 180,138   |  |   | (33,134,533 | ) |  |                       | (39,251,737 | )     |  |   | 569,650   |  |   | (38,682,087 | )
|Total Assets |  |                                   | 26,502,145  |   |                                   |   | 2,536,055 |  |   | 29,038,200  |   |  |                       | 49,163,369  |       |  |   | 2,504,097 |  |   | 51,667,466  |  
|Goodwill     |  |                                   | 893,000     |   |                                   |   | 300,437   |  |   | 1,193,437   |   |  |                       | 893,000     |       |  |   | 300,437   |  |   | 1,193,437   |  

18. Commitments and contingencies:

Operating leases

The Company has operating leases for various facilities, automobiles, machinery, and equipment,
which expire at various times through 2012. The annual aggregate rental commitments under non-cancelable leases are as follows:



|                      |  |   |          
|--------------------- |  | - | ---------
|Year ending March 31, |  |  
|2008                  |  | $ | 2,782,464
|2009                  |  |   | 2,144,495
|2010                  |  |   | 841,829  
|2011                  |  |   | 406,127  
|2012                  |  |   |         
|                      |  |   |          
|                      |  | $ | 6,174,915
|                      |  |   |          

The annual aggregate future rental income from sub-leases is as follows:



|                      |  |   |        
|--------------------- |  | - | -------
|Year ending March 31, |  |  
|2008                  |  | $ | 493,171
|2009                  |  |   |       
|                      |  |   |        
|                      |  | $ | 493,171
|                      |  |   |        

Rent expense for all operating leases was approximately $0.8 million for each of the three months ended
March 31, 2008 and 2007 respectively. Rent expense for all operating leases was approximately $1.6 million for the six months ended March 31, 2008 and 2007 respectively. Rental income from subleases aggregated $0.1 million for the three
months ended March 31, 2008 and 2007. Rental income from subleases aggregated $0.2 million for the six months ended March 31, 2008 and 2007. Rental income and has been included in general and administrative expenses in the accompanying
statements of operations.



36



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



18. Commitments and contingencies (continued):



Litigation

The
Companys subsidiary, Analytica is a party to a litigation brought against a former employee, alleging breach of covenants not to compete, breach of confidentiality agreements and misappropriation of proprietary information. This matter is
pending in the Supreme Court of New York, New York County. The defendant has filed an Answer containing counterclaims alleging that he is owed contractual bonus and other compensation and seeking damages for wrongful termination against Analytica,
the Company and an officer of the Company. We filed a motion seeking to dismiss all claims naming the Company and the Companys officer personally, and to dismiss certain claims against all defendants. In June 2007, the Court granted our motion
and dismissed defendants counterclaims against our officer with prejudice, and dismissed all other counterclaims as well, allowing defendant an opportunity to replead by July 31, 2007. The defendant refiled an Amended Counterclaim in July
2007, and we have filed a motion seeking to dismiss virtually all claims in the Amended Counterclaim which the Court has scheduled for argument in May 2008. We have indicated that we plan to pursue our affirmative claims in this matter vigorously
and will assert all available defenses against the counterclaims, which we believe are without merit.

Further, 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.

Based upon advice of counsel and its own analysis, the
Company believes that there is no likelihood of exposure to material liability on account of these pending litigations. Therefore, no amounts are currently accrued for the above litigations.

19. Variable Interest Entities:

Accounting for the NMTC financing
arrangement and variable interest entities

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

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

New Market Tax Credit Transaction I:



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



37



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



19. Variable Interest Entities (continued):



Accounting for the NMTC financing arrangement and variable interest entities (continued)



New Market Tax Credit Transaction II:



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

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

Assets of $20.3 million and liabilities of $15.6 million of the variable interest entities identified above, are limited to the instruments pertaining in
to the NMTC financing arrangement. In accordance with consolidation principles, these assets and liabilities are eliminated in consolidation leaving the non-controlling interests of Biolender, LLC, Telesis CDE Two, LLC, Biovax Investment, LLC,
Biolender II, LLC, AutovaxID Investment, LLC, and St. Louis NMTC Fund II, LLC, reflected on the Companys March 31, 2008 consolidated balance sheet as non-controlling interests in variable interest entities.

Revimmune LLC

On February 27, 2007, the Company entered into a
sublicense agreement (the Sublicense Agreement) with Revimmune LLC (Revimmune) under which the Company was granted the exclusive worldwide rights to Revimmune. Revimmune is based on pulsed, ultra-high dosing
of a well known chemotherapeutic agent under a risk management program. Revimmune will treat numerous autoimmune diseases with an initial indication targeting refractory relapsing-remitting Multiple Sclerosis. Revimmune LLC is affiliated with
HCGII and Dr. Frank ODonnell who is an officer and director of the Company.

Under the Sublicense Agreement, the Company is obligated to pay to
Revimmune a royalty of 4% on net sales, and in the event of a sublicense by the Company, to pay 10% of sublicense consideration received. Upon the approval of the sublicensed treatment in the U.S. for each autoimmune disease, the Company is
required to issue to Revimmune vested warrants to purchase 800,000 shares of the Companys common stock. The warrants which will be granted at the approval of the first Sublicensed Product will have an exercise price of $8 per share and any
subsequent warrants to be issued will have an exercise price equal to the average of the volume weighted average closing prices of the Companys common stock during the ten (10) trading days immediately prior to the grant of such warrant.
The Company assumed certain obligations under Revimmunes license with Johns Hopkins University related to the sublicensed technology, including the payment of all royalty obligations due Johns Hopkins University for the sublicensed products.
The Company will be responsible, at its sole cost and expense, for the development, clinical trial(s), promotion, marketing, sales and commercialization of the sublicensed products.



38



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



19. Variable Interest Entities (continued):



Revimmune LLC (continued)



The Company has the controlling financial interest of Revimmune and is considered the primary beneficiary, and
therefore, the financial statements of Revimmune have been consolidated with the Company as of February 27, 2007 and through March 31, 2008. As of March 31, 2008, Revimmunes assets and equity were approximately $28,321. The
Companys non-controlling interest in earnings from Revimmune for the three months and six months ended March 31, 2008 is a loss of $8,750 and $17,500 respectively.

Non-controlling interest in income (loss)

The Companys non-controlling interest in (income) loss from variable
interest entities on its consolidated statement of operations for the three and six months ended March 31, 2008 consist of the following:



|                                                                   |  |                                         |          |   |                                       |   |          |  
|------------------------------------------------------------------ |  | --------------------------------------- | -------- | - | ------------------------------------- | - | -------- | -
|                                                                   |  | For The Three MonthsEndedMarch 31, 2008 |          |   | For The Six MonthsEndedMarch 31, 2008 |  
|Biovax Investment LLC                                              |  | $                                       | 111,298  |   |                                       | $ | 223,819  |  
|Telesis CDE Two, LLC                                               |  |                                         | (6,444   | ) |                                       |   | (23,833  | )
|AutovaxID Investment, LLC                                          |  |                                         | 104,244  |   |                                       |   | 218,732  |  
|St. Louis NMTC Fund II, LLC                                        |  |                                         | (100,443 | ) |                                       |   | (211,133 | )
|Revimmune LLC                                                      |  |                                         | 8,750    |   |                                       |   | 17,500   |  
|                                                                   |  |                                         |          |   |                                       |   |          |  
|Non-controlling interest in losses from variable interest entities |  | $                                       | 117,405  |   |                                       | $ | 225,085  |  
|                                                                   |  |                                         |          |   |                                       |   |          |  



20. New Market Tax Credit transactions:

April 2006 NMTC Transaction:

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

On March 31, 2006, in contemplation of Transaction I, 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 Biolender, who was added as obligor by way of joinder, to secure the obligations owed to
Laurus as a result of the Laurus Note.

In contemplation of Transaction I, Biovest and Biovests parent company, Accentia formed Biolender as a
Delaware limited liability company. On April 21, 2006, $2.5 million was released from the Restricted Account created under the Laurus Note. These proceeds were used to purchase a 29.5% equity investment in Biolender for $2.5 million.
Accentia used the proceeds of a $6.0 million intraday loan from First Bank to purchase the remaining 70.5% equity interest in Biolender. The $6.0 million loan from First Bank



39



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)



20. New Market Tax Credit transactions (continued):



April 2006 NMTC Transaction (continued):



was fully guaranteed by two officers of Accentia. On April 27, 2006, Biovest redeemed 10 million shares of its common stock owned of record by
Accentia for a $6.0 million cash payment which equaled the market price of $0.60 per share. Accentia used the proceeds of the stock redemption to repay its intraday loan due First Bank. Subsequently, on October 31, 2006, Biovest entered into a
Purchase Agreement with Accentia whereby Biovest purchased Accentias 70.5% ownership interest in Biolender. In consideration of the sale of this interest in Biolender, Biovest issued to Accentia ten million shares of common stock, representing
the negotiated value of the purchased interest (Note 9).

In contemplation of Transaction I, Biovax Investment, LLC (the Fund) was established.
U.S. Bancorp invested $3.6 million for a 99.99% equity interest in the Fund. Biovax Investment Corp., the Fund manager, invested an additional $100 for the remaining 0.01% equity interest. On April 25, 2006, Biolender loaned the Fund $8.5
million pursuant to a 5.18%, annual rate, senior secured, convertible note receivable, due October 27, 2013. Interest on the note is payable as follows: (i) 0.64% interest per annum, non-compounding, shall be payable on the first day of
each calendar month until October 27, 2013; and (ii) any remaining accrued and unpaid interest shall be payable in one installment on October 27, 2013. The note is convertible at the option of the fund into shares of Biovests
common stock near the maturity date.

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



40



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

20. New Market Tax Credit transactions (continued):



April 2006 NMTC Transaction (continued):



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

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

The transaction was structured so that, upon maturity, Biovax will have paid approximately $12.4M in principal and interest payments to the CDE. The operating agreement
of the CDE stipulates that in the event the QLICI is repaid in the combination of stock and cash, the stock received shall be distributed to the Fund. Furthermore, any distributable cash received by Telesis CDE II, LLC shall be distributed to the
Fund in proportion to the Funds respective percentage interest in the CDE in an amount sufficient to fully pay the Funds note payable to Biolender. Furthermore, upon maturity, the Fund will have paid approximately $11.9M in principal and
interest payments to Biolender. At maturity, total equity of the Fund is approximated to be $100,000 resulting from the difference of $12.4M in principal and interest payments received less $11.9M in principal and interest paid less approximately
$400,000 in estimated operating costs of the Fund over the 7.5 year term of the notes. Biolender and US Bancorp entered into a put option wherein US Bancorp will have the right to put its investment in the Fund to Biovest near the maturity of the
instruments at a price of $180,000. Management has concluded that the fair value of US Bancorps investment in the Fund at maturity (approximately $100,000) of both notes would be less than the $180,000 US Bancorp would receive upon exercise of
their put option and thus it is managements expectation that this option will be exercised. Thus, prior to maturity of both notes, it is anticipated that the Fund will be 99.99% owned by Biolender. Biovest accounted for this option as a
derivative liability that requires recognition at fair value. Biovest utilized a probability-based, discounted cash flow approach to value the put. Accordingly, the valuation technique provided for the recognition of the full put amount ($180,000)
at the present value of its cash flows, using market interest rates that would likely be considered by market participants trading similar instruments.

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



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



41



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

20. New Market Tax Credit transactions (continued):



April 2006 NMTC Transaction (continued):





| |  |  | The tax credits arising from this transaction were fully assigned to US Bancorp. Biovax entered into an indemnification agreement directly with US Bancorp that
provides for indemnification in the event of tax credit recapture from events caused by Biovest. Biovax is contractually required to maintain the following covenants to avoid tax credit recapture: (i) Biovax shall maintain its status as a
qualified active low-income business; (ii) At least fifty percent (50%) of the use of the tangible property of the Biovax (whether owned or leased) will be within the low-income community as defined by Section 45D(e) of the U.S. Tax
Code; (iii) At least fifty percent (50%) of the services performed for Biovax by its employees will be within low-income community as defined by Section 45D(e) of the U.S. Tax Code; (iv) Less than five percent (5%) of the
average of the unadjusted bases of the property of Biovax will be attributable to collectibles (as defined in Section 408(m)(2) of the Code, and which includes any work of art; any rug or antique; any metal or gem; any stamp or coin; and any
alcoholic beverage) other than collectibles that are held primarily for sale to customers in the ordinary course of business; (v) Less than five percent (5%) of the average of the unadjusted bases of the property of Biovax will be
attributable to nonqualified financial property (as defined in Section 1397C(e) of the Code and in Section 1.45D-1(d)(4)(i)(E) of the Regulations, and which includes debt, stock, partnership interests, options, futures contracts, forward
contracts, warrants, notional principal contracts, annuities and other similar property); (vi) No part of the business activities of Biovax will consist of the operation of any private or commercial golf course, country club, massage parlor,
hot tub facility, or suntan facility, race track or other facility used for gambling, or store the principal business of which is the sale of alcoholic beverages for consumption off premises; (vii) No part of Biovaxs business activities
will include the rental to others of residential rental property (the term residential rental property is defined in Section 168(e)(2)(A) of the Code as meaning any building or structure if eighty percent (80%) or more of the
gross rental income from such building or structure for the taxable year is rental income from dwelling units); (viii) The predominant trade or business of Biovax will not include the development or holding of intangibles for sale or license,
as provided under Section 1.45D-1(d)(5)(iii) of the Regulations; (ix) Farming (within the meaning of Section 2032A(e)(5)(A) or (B) of the Code) will not be an activity of Biovax; (x) Biovax will generate revenues by the date
of April 25, 2009; (xi) Biovax shall not discontinue conducting business, shall not materially change the nature of its business, and shall not materially change the manner in which its business activities are conducted, other than changes
in the nature of its business or the manner in which it conducts its business that do not cause the making of the Loan by the Lender to cease to constitute a qualified low-income community investment as such term is used in
Section 45D of the Code (as determined by the Lender in its good faith judgment and based upon the advice of counsel); (xii) Biovax will not be a bank, credit union or other financial institution; (xiii) Biovax will not maintain a
qualified low-income building under Section 42 of the Code; (xiv) Biovax will not become a single-member entity treated as disregarded as separate from its owner for federal income tax purposes, nor be liquidated or merged into another
entity without the written consent of Telesis CDE II, LLC; and (xv) Biovax and Biovest will operate consistently with the Asset Purchase and Sale Agreement between Biovax and Biovest, and will not amend such agreement without prior written
consent of Telesis CDE II, LLC. An example of an event that would not cause a recapture is changes in the Internal Revenue Code that results in such recapture. The total indemnification amount could be $4.7 million (representing 39% of the $12.0
million qualified investment). However, in accordance with Financial Interpretation 45 Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of the Indebtedness of Others, the conditions and events
that could result in recapture are within the control of Biovax. Therefore, this potential liability is not reflected in the consolidated financial statements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



42



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

20. New Market Tax Credit transactions (continued):



April 2006 NMTC Transaction (continued):





| |  |  | Biovest, Accentia and certain officers and directors of Biovest and Accentia entered into a guarantee arrangement with the CDE for the debt service of Biovax.
Biovest has guaranteed 100% of the debt service while the officers and directors of Biovest and Accentia have guaranteed up to $6.0 million of the debt service. In addition, Accentia has partially guaranteed debt service with limitations established
at no greater than $60,000 each year the instrument is outstanding. Biovest issued warrants to purchase 1.0 million shares of common stock to the officers and directors as compensation for their guarantees. The guarantees were treated in a
manner similar to contributed service and their fair value of $460,000 was charged to expense upon issuance. Biovest also indemnified the guarantors from any claims of any kind to the extent that the guarantors are called upon to pledge funds,
assets or collateral in connection with the guarantee being executed.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Various legal and accounting fees of $108,000 paid directly by Biovest and involved in structuring this transaction were recorded as a reduction to additional
paid-in capital. Various legal and accounting fees of $170,000 paid by entities in which Biovest has a variable interest and involved in structuring this transaction (the Fund and the CDE) were recorded as a reduction to non-controlling interests in
variable interest entities on Biovests consolidated balance sheet. Professional fees of $360,000 involved in the continuing management of this transaction were recorded as a prepaid expense and will be amortized over a period of seven and one
half years, representing the duration of both convertible notes issued by the Fund and Biovax.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

December 2006 NMTC Transaction

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

On December 8, 2006, Accentia loaned to Biovest $3.1 million pursuant
to a Secured Promissory Note (the Accentia Note). Under the terms of the Accentia Note, interest accrues at a rate equal to prime rate, payable upon demand of Accentia. Biovest paid to Accentia $1.1 million upon the closing of the
Transaction. The remaining $2.0 million of principal and all accrued and unpaid interest is included in notes payable, related parties in the accompanying March 31, 2008 consolidated balance sheet.

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

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



43



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

20. New Market Tax Credit transactions (continued):



December 2006 NMTC Transaction (continued)



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

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

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

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

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

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

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

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



44



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

20. New Market Tax Credit transactions (continued):



December 2006 NMTC Transaction (continued)



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

The tax credits arising from this transaction were fully assigned to US Bancorp. AutovaxID has entered into an indemnification agreement directly with US Bancorp that
provides for indemnification in the event of tax credit recapture from events caused by AutovaxID. AutovaxID is contractually required to maintain the following covenants to avoid tax credit recapture: (i) AutovaxID shall maintain its status as
a qualified active low-income business; (ii) At least fifty percent (50%) of the use of the tangible property of the AutovaxID (whether owned or leased) will be within the low-income community as defined by

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



45



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

20. New Market Tax Credit transactions (continued):



December 2006 NMTC Transaction (continued)



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

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

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



46



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)





21. Subsequent Events:

On April 15, 2008, the Company received notice from The NASDAQ Stock Market, notifying the Company that it is not in compliance with NASDAQ Rule 4450(b)(1)(A), which requires a listed security to maintain a minimum
$50 million market capitalization for continued trading on the NASDAQ Global Market. In order to comply with this listing requirement, Accentia needed to maintain a minimum $50 million market value for at least 10 consecutive business days before
May 15, 2008. To resolve this matter, the Company has filed an application to transfer the listing of the Companys common stock from the NASDAQ Global Market to the NASDAQ Capital Market. The Company filed the application on May 15, 2008
and expects to maintain its current NASDAQ Global Market status pending completion of the transfer application.

On May 9, 2008, Biovest entered into
a financing transaction with one of Biovests directors, whereby Biovest issued a convertible promissory note in the amount of $1 million (the Note), bearing interest at 10% and with a maturity date of the earlier to occur of one
year from the date of issuance, or, at the election of the lender, upon closing of a financing transaction resulting in net proceeds to Biovest of at least $15 million. The Note was fully funded on May 13, 2008. Interest only is payable monthly
and may be paid by issuance of Biovests restricted common stock, calculated at a price of $0.50 per share. At any time after issuance of the Note the lender may elect to convert all or any portion of the outstanding principal and accrued
interest on the Note into common stock of Biovest, at a conversion price equal to $0.50 per share. As part of this transaction Biovest issued to the lender a Warrant to purchase up to 2,000,000 shares of Biovests common stock at an exercise
price of $0.50 per share, with cashless exercise provisions and a 7-year term. In addition, Biovest entered into an option agreement with the lender whereby the lender may elect, at any time before maturity of the Note as defined therein, to
increase his loan by an amount of up to the full original loan amount ($1 million) upon the same terms as contained in the original Note, including issuance of additional warrants with the same term, exercise price, and cashless exercise provisions.

The terms of the Director Financing transaction set forth above provide for issuance of shares of common stock of Biovest at a price of $0.50 per
share. Pursuant to the terms of the September 2006 Debentures, this issuance results in a reset of the price for which the Holders of the September 2006 Debentures and the Warrants issued in connection therewith may voluntarily exchange their
debenture or exercise their warrants for shares of Biovest designated for that purpose as part of the September Debenture transaction from the current price of $1.10 per share to a new Exchange Price of $0.50 per share.



47



---

##### Table of Contents

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

When you read this section of this Quarterly Form 10Q, it is important that you also read the financial statements and related notes included elsewhere in this Form 10Q. This section of this quarterly report
contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. We use words such as anticipate, estimate, plan,
project, continuing, ongoing, expect, believe, intend, may, will, should, could, and similar expressions to identify
forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the matters discussed under the caption Risk Factors in Item 1,
BUSINESS in our annual report on Form 10-K for the fiscal year ended September 30, 2007 those additional risks, discussed in ITEM 1A. of Part II of this quarterly report and other risks and uncertainties discussed in filings
made with the Securities and Exchange Commission.

Overview

We are a biopharmaceutical company focused on the development and commercialization of late-stage, targeted therapeutic clinical products. We have three products in or entering Phase 3 clinical trials, two of which have fast-track status.
All three products modify the immune system to treat disease. Our first such product candidate, SinuNase, is being developed as a treatment for chronic sinusitis (CS) which the medical establishment also refers to as chronic rhinosinusitis (CRS),
which is a chronic inflammatory condition of the paranasal sinuses that among others, results in nasal congestion, facial pain and pressure, nasal discharge, and headaches. SinuNase is an amphotericin B suspension that is self-administered into a
patients nasal cavity for the treatment of CS. If approved by the FDA, we expect that SinuNase would be the first and only foreseeable pharmaceutical product indicated for the treatment of chronic sinusitis. In April 2005, we submitted an
Investigational New Drug Application, or IND, with the FDA for SinuNase. In December 2006, we commenced the first of two Phase 3 clinical trials for SinuNase for patients who have recurrent CS whose disease severity has warranted surgical
intervention for CS sometime in the past, and in November 2007, we completed randomization of all patients required under the SinuNase Phase 3 clinical trial protocol. We announced top-line unblinded results of the Phase 3 data relating to the
primary endpoint in March 2008, and have provided follow-up data on more detailed analysis of the unblinded results in April 2008. Discussions are planned with FDA as to the continued clinical development and the pathway to commercialization of
SinuNase.

Our second product candidate, BiovaxID, under development by our subsidiary, Biovest, a publicly held company in which we currently hold
approximately 76% of the outstanding capital stock is a patient-specific anti-cancer vaccine to treat follicular non-Hodgkins lymphoma, or follicular NHL. Follicular NHL is a cancer of the lymphatic system that results when the bodys follicle
center cells, which are a type of white blood cell, become abnormal and eventually spread throughout the body growing and dividing in an uncontrolled fashion. BiovaxID is a customized, patient specific therapeutic anti-cancer vaccine that is derived
from a patients own cancer cells and is designed to utilize the power of the patients immune system to recognize and destroy cancerous lymphoma cells while sparing normal cells. We produce this vaccine by extracting a portion of the
patients tumor cells and then replicating and purifying the unique antigen that is present only on the surface of the patients own tumor cells. Biovest is currently conducting a pivotal Phase 3 clinical trial for BiovaxID in patients
with the indolent, or low-grade, form of B-cell follicular NHL. Based on its analysis of available unblinded clinical trial data from the BiovaxID Phase 3 trial, in June 2007 the independent Data Monitoring Committee (DMC) for BiovaxID recommended
that Biovest conduct an interim analysis of the studys efficacy endpoints and overall safety profile. In April 2008, the DMC reviewed the unblinded data from the study and recommended that the trial be halted and the data from the study be
unblinded in August 2008 for submission to the FDA and worldwide regulatory authorities. Discussions are planned with FDA as to accelerated approval process and the pathway to commercialization of BiovaxID.

Our third product candidate, Revimmune is being developed as a treatment for multiple sclerosis (MS). MS is an autoimmune disease that affects the central nervous system
(CNS). Myelin, a fatty tissue, surrounds and protects the nerve fibers of the CNS and helps those nerve fibers to conduct electrical impulses. In MS that myelin sheath is lost in different areas and results in scar tissue which is known as
sclerosis. Since the myelin or the nerve fibers are damaged the nerves itself cannot conduct electrical impulses from and to the brain which results in the symptoms of MS. As a result MS is characterized by recurrent episodes of demyelination and
inflammation within the central nervous system. Revimmune therapy consists of approximately four consecutive days of in-patient or out-patient treatment with an ultra-high intensity, short-course of an intravenous formulation of an approved drug
(cyclophosphamide). This treatment seeks to reboot a patients immune system, thereby eliminating the autoimmunity which is characteristic of MS. The rebooting process is achieved by temporarily eliminating
peripheral immune cells, including the immune cells causing the autoimmunity, while selectively sparing the stem cells in the bone marrow. The surviving stem cells are able, typically within two-three weeks, to repopulate the body with a nascent
immune system which lacks misdirected immunity to self-antigens. In July 2007, the Company filed a pre-IND submission with the FDA for the commencement of a Phase 3 clinical trial and conducted pre-IND meetings. We are preparing to file our IND with
the FDA in the first half of calendar 2008. The Company believes that Revimmune may additionally have applications for the treatment of a variety of autoimmune diseases other than MS, including Systemic Lupus, Myasthenia Gravis and Aplastic Anemia.



48



---

##### Table of Contents

We are a vertically-integrated commercial enterprise with competencies in the identification, development, regulatory
approval, pricing, reimbursement, managed care contracting, manufacturing, and sales and marketing of biopharmaceuticals and medical devices. We currently market pharmaceutical products through our Accentia Pharmaceuticals division, which has a
dedicated specialty sales force. Our pharmaceutical product consulting business provides a broad range of services, including product candidate selection, outcomes research on the economic profiles of pharmaceuticals and biologics, pricing and
market assessment on these products, reimbursement strategies and various services designed to expedite clinical trials to companies and institutions in the pharmaceutical, biotechnology, and medical markets as well as for our internal use. Our
instrument business manufactures equipment used in the production of cells and other biologics based on the hollow-fiber production method and includes our newly introduced automated instrument, AutovaxID.

We were incorporated in Florida in 2002. Our principal executive offices are located at 324 South Hyde Park Avenue, Suite 350, Tampa, Florida 33606. Our telephone number
at that address is (813) 864-2554. Our Internet website address is www.accentia.net, and all of our filings with the Securities and Exchange Commission are available free of charge on our website.

Results of Operations

Three Months Ended March 31, 2008
Compared to the Three Months Ended March 31, 2007

Consolidated Results of Operations

Net Sales.Our net sales for the three months ended March 31, 2008 were $4.2 million, a decrease of $0.4 million, or 9%, from the three months
ended March 31, 2007. The decrease in our consolidated net sales for the three months ended March 31, 2008 reflected a decrease of $0.6 million in net sales in our Specialty Pharmaceuticals segment primarily due to the discontinuance of
our Respi-Tann G product line due to FDA mandate, and product returns, offset by a increase of $0.2 million in net sales of our Analytica subsidiary.

Cost of Sales.Our cost of sales for the three months ended March 31, 2008 was $1.5 million, or 36% of net sales, compared to $1.4 million, or 31% of net sales, during the three months ended March 31, 2007. This
represented an increase of $0.1 million, or 5%, over the three months ended March 31, 2007 primarily attributable to increased rebate expenses in our Specialty Pharmaceutical subsidiary.

Research and Development Expenses.Our research and development costs were $2.7 million for the three months ended March 31, 2008; a decrease of $2.9
million, or 52%, over the three months ended March 31, 2007. Our Biovest subsidiary research and development expense decreased by $1.9 million during the quarter ended March 31, 2008 compared to the quarter ended March 31, 2007
as a result of our decision to stop the BiovaxID clinical trial and seek conditional approval with the FDA and EMEA. This has resulted in both R&D staffing levels as well as the number of sites participating in our clinical trials to have
declined considerably. There was also a decrease of $1.0 million in SinuNase research and development expense due to the approaching completion of Phase 3 clinical trials.

Sales and Marketing expenses.Our sales and marketing expenses were $1.8 million for the three months ended March 31, 2008; a decrease of $0.5 million, or 22%, over the three months ended
March 31, 2007. This decrease was primarily due to a reduction in sales related personnel due to lower sample fees and market development costs in our Specialty Pharmaceuticals subsidiary.

General and Administrative Expenses.Our general and administrative expenses were $5.8 million for the three months ended March 31, 2008; a decrease
of $0.7 million, or 11%, over the three months ended March 31, 2007. This decrease is primarily due to reduced bonus expense in our Biovest subsidiary, and reduced facility, insurance and professional costs related to the closure of our
Specialty Pharmaceuticals office during the three months ended March 31, 2007.

Interest Expense.In the three months ended
March 31, 2008, our interest expense was $4.1 million, an increase of $2.5 million, over the three months ended March 31, 2007. The increase is due primarily to interest from addition borrowing through long-term debt, and notes payable,
and from the current period amortization associated with warrants issued of $7.6 million.

Derivative gain.Derivative gain was $3.4 million
for the three months ended March 31, 2008 as compared to a gain of $8.8 million for the three months ended March 31, 2007. This decrease is related to the derivative instruments associated with the Laurus financing arrangement that
commenced in the 2005 fiscal year, the derivative instruments issued in conjunction with the Midsummer transactions in September 2006 and February 2007 and the put associated with the termination investment of the McKesson Biologics Distribution
Agreement, and warrants associated with the January 2008 preferred stock transaction, and results primarily from the decrease in our common stock price during the quarter ended March 31, 2008 on which the derivative liabilities are based.



49



---

##### Table of Contents

Loss on extinguishment of debt.The loss on extinguishment of debt for the three months ended
March 31, 2008 was $0.4 million as compared to no loss for the three months ended March 31, 2007. This loss was a result of Biovests modification to the provisions of debt payable to Pulaski.

Non-controlling interest in losses from variable interest entities.Non-controlling interest in losses from variable interest entities for the three months
ended March 31, 2008 was $0.1 million. $8,750 related to Accentias interest in Revimmune, the balance relates to Biovests interest in the NMTC entities.

Segment Operating Results



|                                              |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|--------------------------------------------- |  | ------------------------------------ | --------- | - | -------------------- | --- | -- | ------ | - | -------------------- |  | --- | -
|                                              |  | For the Three Months Ended March 31, |          
|                                              |  | 2008                                 |           |   | 2007                 |    
|                                              |  | Amount                               |           |   | % ofSegmentNet Sales |     |    | Amount |   | % ofSegmentNet Sales | 
|Net Sales:                                    |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Biopharmaceutical Products and Services-      |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Biovest                                       |  | $                                    | 1,555,630 |   |                      |     |    |        | $ | 1,551,817            |  |     |  
|All other business units                      |  |                                      | 2,345,935 |   |                      |     |    |        |   | 2,140,238            |  |     |  
|                                              |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Total Biopharmaceutical Products and Services |  |                                      | 3,901,565 |   |                      |     |    |        |   | 3,692,055            |  |     |  
|Specialty Pharmaceuticals                     |  |                                      | 259,853   |   |                      |     |    |        |   | 865,729              |  |     |  
|                                              |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Total Net Sales                               |  | $                                    | 4,161,418 |   |                      |     |    |        | $ | 4,557,784            |  |     |  
|                                              |  |                                      |           |  
|Cost of Sales:                                |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Biopharmaceutical Products and Services-      |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Biovest                                       |  | $                                    | 808,203   |   |                      |     |    |        | $ | 851,144              |  |     |  
|All other business units                      |  |                                      | 371,266   |   |                      |     |    |        |   | 447,529              |  |     |  
|                                              |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Total Biopharmaceutical Products and Services |  |                                      | 1,179,469 |   |                      | 30  | %  |        |   | 1,298,673            |  | 35  | %
|Specialty Pharmaceuticals                     |  |                                      | 303,804   |   |                      | 117 | %  |        |   | 113,501              |  | 13  | %
|                                              |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Total Cost of Sales                           |  | $                                    | 1,483,273 |   |                      |     |    |        | $ | 1,412,174            |  |     |  
|                                              |  |                                      |           |  
|Gross Margin:                                 |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Biopharmaceutical Products and Services-      |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Biovest                                       |  | $                                    | 747,427   |   |                      |     |    |        | $ | 700,673              |  |     |  
|All other business units                      |  |                                      | 1,974,669 |   |                      |     |    |        |   | 1,692,709            |  |     |  
|                                              |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Total Biopharmaceutical Products and Services |  |                                      | 2,722,096 |   |                      | 70  | %  |        |   | 2,393,382            |  | 65  | %
|Specialty Pharmaceuticals                     |  |                                      | (43,951   | ) |                      | (17 | )% |        |   | 752,228              |  | 87  | %
|                                              |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Total Gross Margin                            |  | $                                    | 2,678,145 |   |                      |     |    |        | $ | 3,145,610            |  |     |  
|                                              |  |                                      |           |  
|Research and Development Expenses:            |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Biopharmaceutical Products and Services       |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Biovest                                       |  | $                                    | 1,214,370 |   |                      |     |    |        | $ | 3,128,164            |  |     |  
|All other business units                      |  |                                      | 1,442,316 |   |                      |     |    |        |   | 2,420,747            |  |     |  
|                                              |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Total Biopharmaceutical Products and Services |  |                                      | 2,656,686 |   |                      | 68  | %  |        |   | 5,548,911            |  | 153 | %
|Specialty Pharmaceuticals                     |  |                                      |          |   |                      | 0   | %  |        |   |                     |  | 0   | %
|                                              |  |                                      |           |   |                      |     |    |        |   |                      |  |     |  
|Total Research and Development Expenses       |  | $                                    | 2,656,686 |   |                      |     |    |        | $ | 5,548,911            |  |     |  



50



---

##### Table of Contents

|                                              |  |                                      |           |                      |      |   |        |   |                      |  |    |  
|--------------------------------------------- |  | ------------------------------------ | --------- | -------------------- | ---- | - | ------ | - | -------------------- |  | -- | -
|                                              |  | For the Three Months Ended March 31, |          
|                                              |  | 2008                                 |           |                      | 2007 |  
|                                              |  | Amount                               |           | % ofSegmentNet Sales |      |   | Amount |   | % ofSegmentNet Sales | 
|Sales and Marketing Expenses:                 |  |                                      |           |                      |      |   |        |   |                      |  |    |  
|Biopharmaceutical Products and Services       |  |                                      |           |                      |      |   |        |   |                      |  |    |  
|Biovest                                       |  | $                                    | 66,164    |                      |      |   |        | $ | 34,079               |  |    |  
|All other business units                      |  |                                      |          |                      |      |   |        |   |                     |  |    |  
|                                              |  |                                      |           |                      |      |   |        |   |                      |  |    |  
|Total Biopharmaceutical Products and Services |  |                                      | 66,164    |                      | 2    | % |        |   | 34,079               |  | 2  | %
|Specialty Pharmaceuticals                     |  |                                      | 1,686,875 |                      | 649  | % |        |   | 2,224,553            |  | 25 | %
|                                              |  |                                      |           |                      |      |   |        |   |                      |  |    |  
|Total Sales and Marketing Expenses            |  | $                                    | 1,753,039 |                      |      |   |        | $ | 2,258,632            |  |    |  

Biopharmaceutical Products and Services

Net Sales.Our net sales in our Biopharmaceutical Products and Services segment for the three months ended March 31, 2008 were $3.9 million, an
increase of $0.2 million, or 6%, from the three months ended March 31, 2007. This increase was attributable primarily to a increase of $0.2 million in net sales of our Analytica International subsidiary.

Cost of Sales.Our cost of sales in the Biopharmaceutical Products and Services segment for the three months ended March 31, 2008 was $1.2 million, or
30% of segment net sales, compared to $1.3 million, or 35% of segment net sales, during the three months ended March 31, 2007.

Research and
Development Expenses.Our research and development costs were $2.7 million for the three months ended March 31, 2008; a decrease of $2.9 million, or 52%, over the three months ended March 31, 2007. As Biovest intends to file
for conditional approval with the FDA and EMEA, Biovest focused on reducing R&D expenses from that of historical levels. This has resulted in both R&D staffing levels as well as the number of sites participating in our clinical trials to
have declined considerably. The Biovest decrease of $1.9 million was in addition to a decrease of $1.0 million in SinuNase research and development expense due to the approaching completing of Phase III clinical trials.

Specialty Pharmaceuticals

Net Sales.Net sales
in the Specialty Pharmaceuticals segment for the three months ended March 31, 2008, including net sales to related parties, were $0.3 million, a decrease of $0.6 million, or 70%, from the three months ended March 31, 2007. This decrease
was primarily attributable to increased rebate expenses.

Cost of Sales.Our cost of sales in the Specialty Pharmaceuticals segment for the
three months ended March 31, 2008 was $0.3 million, or 117% of net sales, compared to $0.1 million, or 13% of net sales, during the three months ended March 31, 2007. The increase was the result of higher than normal product returns during
the three months ended March 31, 2008.

Research and Development Expenses.There were no research and development expenses in our
Specialty Pharmaceuticals segment in either of the three months ended March 31, 2008 or 2007.

Sales and Marketing Expenses.Our sales
and marketing expenses in the Specialty Pharmaceuticals segment were $1.7 million in the three months ended March 31, 2008; a decrease of $0.5 million, or 24%, over the three months ended March 31, 2007. This decrease was primarily due to
a reduction in sales related personnel due to divesture of Histex and Xodol, lower sample fees and market development costs.

Six Months Ended
March 31, 2008 Compared to the Six Months Ended March 31, 2007

Consolidated Results of Operations

Net Sales.Our net sales for the six months ended March 31, 2008 were $8.5 million, a decrease of $1.9 million, or 19%, from the six months ended
March 31, 2007. The decrease in our consolidated net sales for the six months ended March 31, 2008 reflected a decrease of $2.0 million in net sales in our Specialty Pharmaceuticals segment primarily due to the divestiture of our Xodol and
Histex product lines in October 2006, the discontinuance of our Respi-Tann G product line due to FDA mandate, and product returns, an increase of $0.1 million in net sales of our Analytica subsidiary.



51



---

##### Table of Contents

Cost of Sales.Our cost of sales for the six months ended March 31, 2008 was $3.2 million, or 38% of
net sales, compared to $3.0 million, or 29% of net sales, during the six months ended March 31, 2007. This represented an increase of $0.2 million, or 5%, over the six months ended March 31, 2007 primarily due to the creation of reserves
of $0.2 million for the Respi~TANN G products and higher product returns in the prior period, offset by lower sales in our Specialty Pharmaceuticals subsidiary.

Research and Development Expenses.Our research and development costs were $6.5 million for the six months ended March 31, 2008; a decrease of $3.6 million, or 35%, over the six months ended March 31, 2007. Our
Biovest subsidiary research and development expense decreased by $4.0 million during the six months ended March 31, 2008 compared to the quarter ended March 31, 2007. As Biovest intends to file for conditional approval with the FDA and
EMEA, Biovest focused on reducing R&D expenses from that of historical levels. This has resulted in both R&D staffing levels as well as the number of sites participating in our clinical trials to have declined considerably. This was offset
by an increase of $0.4 million in SinuNase research and development expense due to the continuing Phase III clinical trials in the six months ended March 31, 2008.

Sales and Marketing expenses.Our sales and marketing expenses were $3.5 million for the six months ended March 31, 2008; a decrease of $1.0 million, or 22%, over the six months ended March 31,
2007. This decrease was primarily due to a reduction in sales related personnel due to divesture of Histex and Xodol, lower sample fees and market development costs in our Specialty Pharmaceuticals subsidiary.

General and Administrative Expenses.Our general and administrative expenses were $11.4 million for the six months ended March 31, 2008; a decrease of
$1.8 million, or 14%, over the six months ended March 31, 2007. This decrease is primarily due to a one-time reduction of bad debt expense due to an adjustment to the accounts receivable reserve in our Specialty Pharmaceuticals segment. In
addition, the six months ended March 31, 2007 included a $0.7 million settlement expense relating to the separation agreements of two employees.

Interest Expense.In the six months ended March 31, 2008, our interest expense was $17.1 million, an increase of $3.2 million, over the six months ended March 31, 2007. The increase is due primarily to interest from
addition borrowing through long-term debt, and notes payable, and from the current period accretion associated with deferred finance costs issued of $7.6 million.

Derivative gain.Derivative gain was $1.1 million for the six months ended March 31, 2008 as compared to a gain of $8.2 million for the six months ended March 31, 2007. This decrease is related to the derivative
instruments associated with the Laurus financing arrangement that commenced in the 2005 fiscal year, the derivative instruments issued in conjunction with the Midsummer transactions in September 2006 and February 2007, the put associated with the
termination investment of the McKesson Biologics Distribution Agreement, and warrants associated with the January 2008 Preferred Stock transaction, and results primarily from the decrease in our common stock price during the six months ended
March 31, 2008 on which the derivative liabilities are based.

Loss on financing transaction.In the six months ended March 31,
2008, there was no loss on financing transaction compared to a $8.8 million loss for the six ended March 31, 2007. This loss is attributable to the issuance of warrants entitling Laurus to purchase Biovest shares owned by Accentia. The warrants
were issued in order to obtain consent for various transactions including the termination of a first right of refusal agreement with Biovest, the sale of our interest in Biolender, LLC, and termination of the Biologics Products Commercialization
Agreement with Biovest.

Loss on extinguishment of debt.The loss on extinguishment of debt for the six months ended March 31, 2008 was
$1.8 million as compared to no loss for the six months ended March 31, 2007. The loss was a result of Biovests modification to the provisions of debt payable to Laurus and to Pulaski.

Non-controlling interest in losses from variable interest entities. Non-controlling interest in losses from variable interest entities for the six months
ended March 31, 2008 was $0.2 million. $17,500 related to Accentias interest in Revimmune, the balance relates to Biovests interest in the NMTC entities.



52



---

##### Table of Contents

Segment Operating Results



|                                              |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|--------------------------------------------- |  | ---------------------------------- | --------- | -------------------- | ---- | - | ------ | - | -------------------- |  | --- | -
|                                              |  | For the Six Months Ended March 31, |          
|                                              |  | 2008                               |           |                      | 2007 |  
|                                              |  | Amount                             |           | % ofSegmentNet Sales |      |   | Amount |   | % ofSegmentNet Sales | 
|Net Sales:                                    |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Biopharmaceutical Products and Services-      |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Biovest                                       |  | $                                  | 2,814,660 |                      |      |   |        | $ | 2,878,925            |  |     |  
|All other business units                      |  |                                    | 4,665,817 |                      |      |   |        |   | 4,588,318            |  |     |  
|                                              |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Total Biopharmaceutical Products and Services |  |                                    | 7,480,477 |                      |      |   |        |   | 7,467,243            |  |     |  
|Specialty Pharmaceuticals                     |  |                                    | 1,017,006 |                      |      |   |        |   | 2,972,284            |  |     |  
|                                              |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Total Net Sales                               |  | $                                  | 8,497,483 |                      |      |   |        | $ | 10,439,527           |  |     |  
|                                              |  |                                    |           |                     
|Cost of Sales:                                |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Biopharmaceutical Products and Services-      |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Biovest                                       |  | $                                  | 1,490,711 |                      |      |   |        | $ | 1,617,236            |  |     |  
|All other business units                      |  |                                    | 906,070   |                      |      |   |        |   | 870,726              |  |     |  
|                                              |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Total Biopharmaceutical Products and Services |  |                                    | 2,396,781 |                      | 32   | % |        |   | 2,487,962            |  | 33  | %
|Specialty Pharmaceuticals                     |  |                                    | 795,114   |                      | 78   | % |        |   | 549,504              |  | 18  | %
|                                              |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Total Cost of Sales                           |  | $                                  | 3,191,895 |                      |      |   |        | $ | 3,037,466            |  |     |  
|                                              |  |                                    |           |                     
|Gross Margin:                                 |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Biopharmaceutical Products and Services-      |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Biovest                                       |  | $                                  | 1,323,949 |                      |      |   |        | $ | 1,261,689            |  |     |  
|All other business units                      |  |                                    | 3,759,747 |                      |      |   |        |   | 3,717,592            |  |     |  
|                                              |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Total Biopharmaceutical Products and Services |  |                                    | 5,083,696 |                      | 68   | % |        |   | 4,979,281            |  | 67  | %
|Specialty Pharmaceuticals                     |  |                                    | 221,892   |                      | 22   | % |        |   | 2,422,780            |  | 82  | %
|                                              |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Total Gross Margin                            |  | $                                  | 5,305,588 |                      |      |   |        | $ | 7,402,061            |  |     |  
|                                              |  |                                    |           |                     
|Research and Development Expenses:            |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Biopharmaceutical Products and Services       |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Biovest                                       |  | $                                  | 2,103,414 |                      |      |   |        | $ | 6,065,613            |  |     |  
|All other business units                      |  |                                    | 4,368,872 |                      |      |   |        |   | 3,962,963            |  |     |  
|                                              |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Total Biopharmaceutical Products and Services |  |                                    | 6,472,286 |                      | 87   | % |        |   | 10,028,576           |  | 134 | %
|Specialty Pharmaceuticals                     |  |                                    |          |                      | 0    | % |        |   |                     |  | 0   | %
|                                              |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Total Research and Development Expenses       |  | $                                  | 6,472,286 |                      |      |   |        | $ | 10,028,576           |  |     |  
|                                              |  |                                    |           |                     
|Sales and Marketing Expenses:                 |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Biopharmaceutical Products and Services       |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Biovest                                       |  | $                                  | 105,723   |                      |      |   |        | $ | 63,535               |  |     |  
|All other business units                      |  |                                    |          |                      |      |   |        |   |                     |  |     |  
|                                              |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Total Biopharmaceutical Products and Services |  |                                    | 105,723   |                      | 1    | % |        |   | 63,535               |  | 1   | %
|Specialty Pharmaceuticals                     |  |                                    | 3,373,869 |                      | 332  | % |        |   | 4,372,551            |  | 147 | %
|                                              |  |                                    |           |                      |      |   |        |   |                      |  |     |  
|Total Sales and Marketing Expenses            |  | $                                  | 3,479,592 |                      |      |   |        | $ | 4,436,086            |  |     |  



53



---

##### Table of Contents

Biopharmaceutical Products and Services

Net Sales.Our net sales in our Biopharmaceutical Products and Services segment for the six months ended March 31, 2008 were $7.5 million, or no change from the six months ended March 31,
2007.

Cost of Sales.Our cost of sales in the Biopharmaceutical Products and Services segment for the six months ended March 31, 2008
was $2.4 million, or 32% of segment net sales, compared to $2.5 million, or 33% of segment net sales, during the six months ended March 31, 2007.

Research and Development Expenses.Our research and development costs were $6.5 million for the six months ended March 31, 2008; a decrease of $3.6 million, or 35%, over the six months ended March 31, 2007. As
Biovest intends to file for conditional approval with the FDA and EMEA, Biovest focused on reducing R&D expenses from that of historical levels. This has resulted in both R&D staffing levels as well as the number of sites participating in
our clinical trials to have declined considerably. The Biovest decrease of $4.0 million was offset by an increase of $0.4 million in SinuNase research and development expense due to the continuing Phase III clinical trials during the six months
ended March 31, 2008.

Specialty Pharmaceuticals

Net Sales.Net sales in the Specialty Pharmaceuticals segment for the six months ended March 31, 2008, including net sales to related parties, were $1.0 million, a decrease of $2.0 million, or 66%, from the six months
ended March 31, 2007. This decrease was primarily attributable to the divestitures of our Histex and Xodol product lines, the discontinuance of our Respi~TANN G product due to an FDA mandate, and product returns and rebates.

Cost of Sales.Our cost of sales in the Specialty Pharmaceuticals segment for the six months ended March 31, 2008 was $0.8 million, or 78% of net
sales, compared to $0.5 million, or 18% of net sales, during the six months ended March 31, 2007. The increase was primarily due to the creation of reserves of $0.2 million for the Respi~TANN G products and higher product returns in the prior
period, offset by lower sales.

Research and Development Expenses.There were no research and development expenses in our Specialty
Pharmaceuticals segment in either of the six months ended March 31, 2008 or 2007.

Sales and Marketing Expenses.Our sales and marketing
expenses in the Specialty Pharmaceuticals segment were $3.4 million in the six months ended March 31, 2008; a decrease of $1.0 million, or 23%, over the six months ended March 31, 2007. This decrease was primarily due to a reduction in
sales related personnel due to divesture of Histex and Xodol as well as reduced sample and market development costs.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception,
we have funded our operations primarily through public and private placements of our capital stock, debt financing, conversions of debt to equity, and financing transactions with our strategic partners. These transactions are described throughout
the following pages.

At March 31, 2008, our cash, cash equivalents and current restricted cash totaled $2.4 million. Excluding restricted cash, our
cash and cash equivalents were $1.5 million at March 31, 2008 compared with $1.6 million at September 30, 2007. Restricted cash for March 31, 2008 was $0.9 million held in escrow for payment of principal and interest coming due in the
third quarter of fiscal 2008, and to be used for Biovest operations.

We are in active negotiations to restructure or refinance its debt instruments
including those which mature in fiscal year 2008. These debt instruments include approximately $9.6 million due to Laurus which matured on April 29, 2008 and, based on an ongoing oral understanding with Laurus, has not been paid pending discussions
between the Company and Laurus regarding the manner and timing of repayment. Additionally, we owe approximately $4.0 million to Southwest which matures on June 30, 2008. We anticipate extending or potentially restructuring. Our majority owned
subsidiary, Biovest, owes the Valens Funds, an affiliate of Laurus approximately $8.5 million which matures on June 10, 2008 and Pulaski approximately $1.1 million which matures on June 30, 2008. Biovest plans to repay these obligations at maturity
from an anticipated potential financing. Further, we anticipate that unless otherwise refinanced its principal payment obligations under the convertible debentures issued in September 2006 and February 2007 will be largely satisfied without cash
payments through redemptions of principal paid with its common stock as permitted by these debt instruments.

We expect to finance its foreseeable cash
requirements through public or private equity offerings and debt financings. Additionally, we are seeking a collaboration and license arrangements for each of its three product candidates, SinuNase, Revimmune and BiovaxID which are in, or in the
instance of Revimmune is entering, Phase 3 clinical trials. We believe that our efforts may benefit from the planned unblinding of the BiovaxID Phase 3 clinical trial results which is expected in or around August 2008. Additionally, if adequate
funds are not available from the foregoing sources, we may consider additional strategic financing options, including sales of assets or business units (such as specialty pharmaceuticals, market services or cell culture equipment) that are
non-essential to the ongoing development or future commercialization of SinuNase, BiovaxID or Revimmune, 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. We may seek to access the public or private equity markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at this time. We cannot be certain that additional funding will
be available on acceptable terms, or at all.



54



---

##### Table of Contents

Debt Financing

As of March 31, 2008, our long-term debt and notes payable, including accrued but unpaid interest, current maturities of long-term debt, and lines of credit, not including discount was $64.3 million. We currently have credit facilities
with various lenders, including as listed in the following table and discussed individually in detail below:



|                                                 |  |                               |            |                                     |   |                             |  |                             
|------------------------------------------------ |  | ----------------------------- | ---------- | ----------------------------------- | - | --------------------------- |  | ----------------------------
|Instrument                                       |  | CarryingValue atMarch 31,2008 |            | PrincipalAmount Dueat March 31,2008 |   | Balance SheetClassification
|Credit Facility with Laurus:                     |  |                               |            |                                     |   |                             |  |                             
|Convertible amortizing term note                 |  | $                             | 2,754,833  |                                     | $ | 2,903,227                   |  | Long-term debt              
|Secured revolving note                           |  |                               | 7,147,790  |                                     |   | 7,150,543                   |  | Lines of credit             
|Credit Facility with Laurus  Biovest            |  |                               | 7,310,906  |                                     |   | 7,150,543                   |  | Long-term debt              
|Loans from Pulaski                               |  |                               | 1,160,826  |                                     |   | 1,181,250                   |  | Notes payable               
|Credit Facility with Southwest                   |  |                               | 4,000,000  |                                     |   | 4,000,000                   |  | Lines of credit             
|Private Placement of Debentures                  |  |                               |            |                                     |   |                             |  |                             
|September 2006 Convertible Debentures            |  |                               | 11,861,102 |                                     |   | 10,216,403                  |  | Long-term debt              
|February 2007 Convertible Debentures             |  |                               | 11,550,338 |                                     |   | 21,103,776                  |  | Long-term debt              
|Credit Facilities with Valens Offshore  Biovest |  |                               | 3,855,000  |                                     |   | 3,855,000                   |  | Long-term debt/Notes payable
|Credit Facilities with Valens US  Biovest       |  |                               | 5,145,000  |                                     |   | 5,145,000                   |  | Long-term debt/Notes payable
|Other Notes Payable                              |  |                               | 677,037    |                                     |   | 677,037                     |  | Notes payable               
|Other Notes Payable  Related Party              |  |                               | 388,799    |                                     |   | 571,616                     |  | Notes payable               
|Other Long-term Debt                             |  |                               | 183,378    |                                     |   | 571,616                     |  | Long-term debt              

Carrying values and principal amounts due does not include accrued interest in the table above.

Credit Facility with Laurus Master Fund, Ltd.On April 29, 2005, we entered into a credit facility with Laurus. As of December 31, 2007, a total of $3.8
million in principal amount was outstanding under the term loan portion of the credit facility, while $7.0 million in principal amount was outstanding under the revolving loan portion of the credit facility. Laurus Term Loan payments were
approximately $1.6 million for the six months ended March 31, 2008. The Laurus line of credit balance decreased approximately $0.9 million for the six months ended March 31, 2008.

The term loan portion of the Laurus credit facility is evidenced by an amended and restated secured convertible term note, dated August 16, 2005, in the principal
amount of $10 million. The revolving loan portion of the credit facility is evidenced by an amended and restated secured convertible minimum borrowing note in the amount of $2.5 million and a secured revolving note of up to $5 million, provided
that the aggregate principal amount under both notes combined may not exceed $5 million. Both of the revolving loan notes are dated as of April 29, 2005. Under the revolving loan, we have the right to borrow up to the sum of 85% of all of
eligible accounts receivable and 50% of eligible inventory pledged to secure the loan (with the eligibility criteria being set forth in the loan agreements), as well as 50% of the market value of publicly traded securities pledged by the Francis E.
ODonnell Irrevocable Trust #1. Our initial advance under the revolving loans was $5.0 million, of which $2.5 million was repaid in November 2005. Laurus waived our minimum collateral requirements under our borrowing base for a period of 180
days after April 29, 2005, provided that we pay an applicable over-advance interest rate of 10% per annum on any over-advanced amount.

In
connection with the Laurus credit facility, as amended, we issued to Laurus a warrant to purchase a number of shares of our common stock that is equal to $8.0 million divided by our per share initial public offering price of $8.00. Based on the
initial public offering price of $8.00 per share, a total of 1,000,000 shares of our common stock are subject to this warrant agreement at an exercise price of $8.00 per share. The warrant will expire on the fifth anniversary of the date of warrant
issuance. Laurus may exercise the warrant with cash, in a cashless exercise pursuant to the surrender of the warrant or shares issuable under the warrant, or any combination of the foregoing. We have the right to require Laurus to exercise this
warrant so long as (i) there is an effective current registration statement in place covering the resale of all of the shares of our common stock issuable to Laurus pursuant to the credit facility and (ii) the average closing price of our
common stock for the 20 consecutive trading days immediately preceding the forced exercise date is greater than 140% of our per share initial public offering price. As a part of the August 2005 amendment to the Laurus credit facility, we granted to
Laurus an additional warrant to purchase up to 277,778 shares of our common stock at an exercise price of $.001 per share. This additional warrant is immediately exercisable and, except for the absence of a forced exercise provision, has
substantially the same terms and conditions as the other warrant granted to Laurus.



55



---

##### Table of Contents

The principal and accrued but unpaid interest under each of the Laurus notes were convertible at the option of Laurus
into shares of our common stock at an initial conversion price of $6.95 per share. After the completion of our initial public offering, the conversion price became an amount equal to 85% of the per share initial public offering price or $6.80 per
share. However, these notes cannot be converted by Laurus until the earlier of 270 days after the date of the note or 180 days after our initial public offering. In connection with this credit facility, we entered into a registration rights
agreement under which we agreed to register for public resale all of the shares of our common stock into which the amended and restated secured convertible term note, amended and restated secured convertible minimum borrowing note, and the warrants
granted to Laurus are convertible or exercisable. However, these registration rights do not apply to the secured revolving note. At any time after the effectiveness of a registration statement covering the resale of the shares into which these notes
are convertible, up to $2.5 million in principal amount under the secured revolving note may be transferred by Laurus to the amended and restated secured convertible minimum borrowing note, thereby making such portion of the principal amount subject
to the registration rights agreement.

The amended and restated secured convertible term note accrues interest at a rate of the greater of 10% per
annum or prime rate plus 4%. The amended and restated secured convertible minimum borrowing note and secured revolving note accrue interest at a rate equal to the greater of 7.75% per year or prime rate plus 2%. However, provided that
(i) there is an effective registration statement in place covering the resale of the shares into which the notes are convertible and (ii) the market price of our common stock exceeds the conversion price by 25% for five consecutive trading
days, then the interest rate will be reduced by 2% for each 25% of increase in the market price of our common stock above the conversion price.

The
amended and restated secured convertible term note was due April 29, 2008, in equal monthly payments of principal and interest of $0.3 million. The secured revolving note and amended and restated secured convertible minimum borrowing note were
due on April 29, 2008 with all accrued but unpaid interest payable monthly. We have the right to redeem the notes (other than the secured revolving note) at any time at a redemption price equal to 130% of the principal amount of the note plus
all accrued but unpaid interest, subject to the right of Laurus to convert the note prior to a redemption. The secured revolving note may be prepaid at any time without penalty. On any date on which a payment is due under the amended and restated
convertible term note, Laurus is required to convert the monthly payment amount into shares of common stock so long as and to the extent that (i) there is an effective current registration statement in place covering the resale of all of the
shares of our common stock issuable to Laurus pursuant to the credit facility, (ii) the average closing price of our common stock for the five trading days immediately preceding the payment date is greater than 125% of the note conversion
price, and (iii) the number of shares of common stock to be issued as payment does not exceed 25% of the aggregate dollar trading volume of our common stock during the 22 immediately preceding trading days. Under the amended and restated
secured convertible term note and amended and restated secured convertible minimum borrowing note, Laurus is required to convert such note into a number of shares of our common stock equal to 20% of the aggregate trading volume of our common stock
during the five immediately trading days at the conversion price provided that (i) there is an effective current registration statement in place covering the resale of all for the shares of our common stock issuable to Laurus pursuant to the
credit facility, (ii) the average closing price of our common stock for the five trading days immediately preceding the conversion date is greater than 125% of the note conversion price, and (iii) the amount of the conversion does not
exceed 20% of the aggregate dollar trading volume of our common stock during the 20 immediately preceding trading days.

The Laurus notes are secured by a
first priority security interest in all of our tangible and intangible assets and our Analytica and Accentia Pharmaceuticals subsidiaries (including the stock of their respective subsidiaries). The notes are also secured by certain publicly traded
securities owned by the Francis E. ODonnell Jr. Irrevocable Trust #1.

On December 29, 2005, Laurus agreed to make a loan to us in excess of the
Formula Amount under the Security Agreement dated April 29, 2005. This overadvance is in the amount of up to $2.5 million. In connection with this overadvance, we granted Laurus a warrant to purchase up to 51,000 shares of common stock at an
exercise price of $0.01 per share.

On July 31, 2006, we repaid our loan to Harbinger Mezzanine Partners and increased the principal amount
outstanding under our revolving credit line with Laurus to $7.5 million under an overadvance letter agreement with Laurus.

On August 29, 2007, Laurus
agreed to make loans to us in excess of the Formula Amount under the Security Agreement dated April 29, 2005. This overadvance is in the amount of up to $4.4 million and was in effect through October 21, 2007.

On October 21, 2007, Laurus extended the overadvance through March 31, 2008. In connection with the extension of the overadvance, we granted Laurus a warrant
to purchase up to 4,024,398 shares of our common stock at an exercise price of $2.67.

Based on an ongoing oral understanding with Laurus, we have not paid
the balances due at maturity. Discussions between us and Laurus regarding the manner and timing of repayment are pending.



56



---

##### Table of Contents

Credit Facility with Laurus Master Fund, Ltd.,Biovest  On March 31, 2006, our majority-owned
subsidiary, Biovest closed a financing transaction (the Transaction) with Laurus, pursuant to which Laurus purchased from Biovest a secured promissory note in the principal amount of $7,799,000 (the Note) and a warrant to
purchase up to 18,087,889 shares of Biovests common stock at an exercise price of $.01 per share (the Warrant). Since June 2003, we have been the primary source of financing for Biovest; however, this Transaction with Laurus
represents the initial financing by Biovest from sources other than us.

The Note and Warrant were purchased pursuant to a Note and Warrant Purchase
Agreement between Biovest and Laurus (the Purchase Agreement). The following describes certain material terms of and activity related to the Biovest Transaction:



| |  | Under the terms of the Note, $299,000 of the principal amount was disbursed at the closing of Laurus and other third parties to cover closing fees and expenses
relating to the transaction, and $7,500,000 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.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Under otherwise agreed by Laurus is expected to authorize disbursements from the Restricted Account as the Company is able to secure additional working capital
financing, including without limitation through financings involving NMTC in the amounts and of the type more particularly described in the Transaction documents. On April 28, 2006, $2.5 million was released from the restricted account as part
of a financing transaction involving NMTC.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Pursuant to the original terms of this secured promissory note, Biovest was required to make certain principal and interest payments commencing in calendar 2007.
Biovest did not commence making such payments when originally due and reached an understanding that such payments would not commence while Biovest sought additional financing. This understanding was formalized into a letter agreement dated
March 21, 2007 (the Letter Agreement). Biovest 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 Biovest 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 Biovest. Under the terms of the royalty agreement Biovests royalty payments to Laurus are required to aggregate a minimum of $8.0 million. The balance
(if any), less actual royalties paid, are due at the end of the five year royalty term. In addition, upon satisfaction of certain conditions of the Letter Agreement, Laurus consented to Biovest seeking and, if available, entering into bridge loans
in an aggregate amount of up to $7.0 million.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Note will become due and payable on March 31, 2009, provided that any portion of the principal amount not contained in the Restricted Account will be
amortized in equal monthly payments of principal and interest beginning on July 1, 2006 and ending on the maturity date. The initial monthly payment amount will be $9,060.61 per month, provided that as amounts are released from the Restricted
Account from time to time, such amounts will be added to the amortizing portion of the Note, and the monthly payments will increase accordingly. The Note can be prepaid by Biovest at any time without penalty.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The outstanding principal amount of the Note will bear interest at a rate equal to the greater of the prime rate plus 2% or 9% per annum, except that any
portion of the principal amount contained in the Restricted Account will bear interest at prime rate.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Sixty-four percent (64%) of the Note is guaranteed by us. We also have a separate credit facility with Laurus pursuant to which we pledged our assets as
collateral, and pursuant to the Transaction documents, this pledge of collateral by us will also secure our guarantee of the Note. Additionally, all of the assets of Biovest, including its intellectual property and the stock of Biovax, Inc.
subsidiary, were pledged by Biovest as collateral of the Note and Obligations to Laurus.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Warrant provides that Laurus may purchase up to 18,087,889 shares of Biovests common stock at an exercise price equal to $.01 per share. The Warrant will
expire on March 31, 2021.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In connection with the Transaction, Laurus and Biovest entered into a registration rights agreement providing that Laurus will have the right to require Biovest to
file a registration statement with the U.S. Securities and Exchange Commission to register the resale of the shares issuable to Laurus pursuant to the exercise of the warrant. Biovest will be required to file such registration statement within sixty
(60) days after written demand by Laurus, provided that in no event will Biovest be required to file such registration statement earlier than ninety (90) days after the closing of the Transaction.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



57



---

##### Table of Contents

The note payable provides for monthly payment provisions, a variable interest feature that includes a cap of 9.0% and a
default put at 130% of face value for certain contingent events, including service defaults and changes in control, for the amortizing portion of the arrangement; these features are not present for unreleased, non-amortizing balances. We evaluated
all terms and conditions of the amortizing notes for indications of embedded derivative financial instruments. While the interest rate cap was found to be clearly and closely related to the host instrument, we determined that the default put did not
meet the clearly and closely related criteria as provided in FASB 133 Derivative Financial Instruments. Accordingly, upon release of funds underlying the first tranche, we reclassified an amount of $306,750 which represents the estimated fair value
of the default put liability to derivative liability. Upon release of funds under the second tranche, we reclassified $122,700 to derivative liability. The default liability is initially and subsequently carried at fair value with changes recorded
in income.

New Market Tax Credit Financing.On April 25, 2006, Biovest through its wholly owned subsidiary, Biovax, Inc. (Biovax)
closed a financing transaction (Transaction I) that was structured in an effort to obtain certain perceived advantages and enhancements from the New Markets Tax Credit (NMTC) regulations adopted under the auspices of the
United States Department of the Treasury in 2002 to provide incentive for investing in businesses located in qualifying census tracts, or areas with a median income below the poverty line. The NMTC was provided for in the Community
Renewal Relief Act of 2000 (the Act) and permits taxpayers (whether companies or individuals) to claim credits against their Federal income taxes for up to 39% of qualified investments in the equity of Community Development Entities
(CDE). CDE are privately managed investment institutions that are certified to make Qualified Low-Income Community Investments (QLICI). The following parties were involved in Transaction I: Accentia Biopharmaceuticals, Inc.,
Biovests majority shareholder (Accentia), Biolender, LLC (Biolender), Biovax Investment Corp., Biovax Investment, LLC (Fund), U.S. Bancorp Community Investment Corporation (US Bancorp), Telesis
CDE Two, LLC (CDE), Telesis CDE Corporation, Biovax, Inc., and Laurus Master Fund, Ltd. (Laurus). Biovax is a qualified, active low-income business and is eligible to receive investment capital under the NMTC regulations.

On March 31, 2006, in contemplation of Transaction I, 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 Biolender, who was added as obligor by way of joinder, to secure the obligations owed to Laurus as a result of the Laurus Note.

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

In contemplation of Transaction I, Biovax Investment, LLC
(the Fund) was established. U.S. Bancorp invested $3.6 million for a 99.99% equity interest in the Fund. Biovax Investment Corp., the Fund manager, invested an additional $100 for the remaining 0.01% equity interest. On April 25,
2006, Biolender loaned the Fund $8.5 million pursuant to a 5.18%, annual rate, senior secured, convertible note receivable, due October 27, 2013. Interest on the note is payable as follows: (i) 0.64% interest per annum, non-compounding,
shall be payable on the first day of each calendar month until October 27, 2013; and (ii) any remaining accrued and unpaid interest shall be payable in one installment on October 27, 2013. The note is convertible at the option of the
fund into shares of Biovests common stock near the maturity date.

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



58



---

##### Table of Contents

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

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

The transaction was structured so that, upon maturity, Biovax will have paid approximately $12.4M in principal and interest payments to the CDE. The
operating agreement of the CDE stipulates that in the event the QLICI is repaid in the combination of stock and cash, the stock received shall be distributed to the Fund. Furthermore, any distributable cash received by Telesis CDE II, LLC shall be
distributed to the Fund in proportion to the Funds respective percentage interest in the CDE in an amount sufficient to fully pay the Funds note payable to Biolender. Furthermore, upon maturity, the Fund will have paid approximately
$11.9M in principal and interest payments to Biolender. At maturity, total equity of the Fund is approximated to be $100,000 resulting from the difference of $12.4M in principal and interest payments received less $11.9M in principal and interest
paid less approximately $400,000 in estimated operating costs of the Fund over the 7.5 year term of the notes. Biolender and US Bancorp entered into a put option wherein US Bancorp will have the right to put its investment in the Fund to Biovest
near the maturity of the instruments at a price of $180,000. Management has concluded that the fair value of US Bancorps investment in the Fund at maturity (approximately $100,000) of both notes would be less than the $180,000 US Bancorp would
receive upon exercise of their put option and thus it is managements expectation that this option will be exercised. Thus, prior to maturity of both notes, it is anticipated that the Fund will be 99.99% owned by Biolender. Biovest accounted
for this option as a derivative liability that requires recognition at fair value. Biovest utilized a probability-based, discounted cash flow approach to value the put. Accordingly, the valuation technique provided for the recognition of the full
put amount ($180,000) at the present value of its cash flows, using market interest rates that would likely be considered by market participants trading similar instruments.

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



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



59



---

##### Table of Contents



| |  |  | The tax credits arising from this transaction were fully assigned to US Bancorp. Biovax entered into an indemnification agreement directly with US Bancorp that
provides for indemnification in the event of tax credit recapture from events caused by Biovest. Biovax is contractually required to maintain the following covenants to avoid tax credit recapture: (i) Biovax shall maintain its status as a
qualified active low-income business; (ii) At least fifty percent (50%) of the use of the tangible property of the Biovax (whether owned or leased) will be within the low-income community as defined by Section 45D(e) of the U.S. Tax
Code; (iii) At least fifty percent (50%) of the services performed for Biovax by its employees will be within low-income community as defined by Section 45D(e) of the U.S. Tax Code; (iv) Less than five percent (5%) of the
average of the unadjusted bases of the property of Biovax will be attributable to collectibles (as defined in Section 408(m)(2) of the Code, and which includes any work of art; any rug or antique; any metal or gem; any stamp or coin; and any
alcoholic beverage) other than collectibles that are held primarily for sale to customers in the ordinary course of business; (v) Less than five percent (5%) of the average of the unadjusted bases of the property of Biovax will be
attributable to nonqualified financial property (as defined in Section 1397C(e) of the Code and in Section 1.45D-1(d)(4)(i)(E) of the Regulations, and which includes debt, stock, partnership interests, options, futures contracts, forward
contracts, warrants, notional principal contracts, annuities and other similar property); (vi) No part of the business activities of Biovax will consist of the operation of any private or commercial golf course, country club, massage parlor,
hot tub facility, or suntan facility, race track or other facility used for gambling, or store the principal business of which is the sale of alcoholic beverages for consumption off premises; (vii) No part of Biovaxs business activities
will include the rental to others of residential rental property (the term residential rental property is defined in Section 168(e)(2)(A) of the Code as meaning any building or structure if eighty percent (80%) or more of the
gross rental income from such building or structure for the taxable year is rental income from dwelling units); (viii) The predominant trade or business of Biovax will not include the development or holding of intangibles for sale or license,
as provided under Section 1.45D-1(d)(5)(iii) of the Regulations; (ix) Farming (within the meaning of Section 2032A(e)(5)(A) or (B) of the Code) will not be an activity of Biovax; (x) Biovax will generate revenues by the date
of April 25, 2009; (xi) Biovax shall not discontinue conducting business, shall not materially change the nature of its business, and shall not materially change the manner in which its business activities are conducted, other than changes
in the nature of its business or the manner in which it conducts its business that do not cause the making of the Loan by the Lender to cease to constitute a qualified low-income community investment as such term is used in
Section 45D of the Code (as determined by the Lender in its good faith judgment and based upon the advice of counsel); (xii) Biovax will not be a bank, credit union or other financial institution; (xiii) Biovax will not maintain a
qualified low-income building under Section 42 of the Code; (xiv) Biovax will not become a single-member entity treated as disregarded as separate from its owner for federal income tax purposes, nor be liquidated or merged into another
entity without the written consent of Telesis CDE II, LLC; and (xv) Biovax and Biovest will operate consistently with the Asset Purchase and Sale Agreement between Biovax and Biovest, and will not amend such agreement without prior written
consent of Telesis CDE II, LLC. An example of an event that would not cause a recapture is changes in the Internal Revenue Code that results in such recapture. The total indemnification amount could be $4.7 million (representing 39% of the $12.0
million qualified investment). However, in accordance with Financial Interpretation 45 Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of the Indebtedness of Others, the conditions and events
that could result in recapture are within the control of Biovax. Therefore, this potential liability is not reflected in the consolidated financial statements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Biovest, Accentia and certain officers and directors of Biovest and Accentia entered into a guarantee arrangement with the CDE for the debt service of Biovax.
Biovest has guaranteed 100% of the debt service while the officers and directors of Biovest and Accentia have guaranteed up to $6.0 million of the debt service. In addition, Accentia has partially guaranteed debt service with limitations established
at no greater than $60,000 each year the instrument is outstanding. Biovest issued warrants to purchase 1.0 million shares of common stock to the officers and directors as compensation for their guarantees. The guarantees were treated in a
manner similar to contributed service and their fair value of $460,000 was charged to expense upon issuance. Biovest also indemnified the guarantors from any claims of any kind to the extent that the guarantors are called upon to pledge funds,
assets or collateral in connection with the guarantee being executed.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



60



---

##### Table of Contents

| |  |  | Various legal and accounting fees of $108,000 paid directly by Biovest and involved in structuring this transaction were recorded as a reduction to additional
paid-in capital. Various legal and accounting fees of $170,000 paid by entities in which Biovest has a variable interest and involved in structuring this transaction (the Fund and the CDE) were recorded as a reduction to non-controlling interests in
variable interest entities on Biovests consolidated balance sheet. Professional fees of $360,000 involved in the continuing management of this transaction were recorded as a prepaid expense and will be amortized over a period of seven and one
half years, representing the duration of both convertible notes issued by the Fund and Biovax.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

On December 8, 2006, Accentia loaned to Biovest $3.1 million pursuant to a Secured Promissory Note (the Accentia Note). Under the terms of the Accentia Note, interest accrues at a rate equal to prime
rate, payable upon demand of Accentia. Biovest paid to Accentia $1.1 million upon the closing of the Transaction. The remaining $2.0 million of principal and all accrued and unpaid interest is included in notes payable, related parties in the
accompanying March 31, 2008 consolidated balance sheet.

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

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

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

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



61



---

##### Table of Contents

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

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

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

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

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

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

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

The tax credits arising from this transaction were fully assigned to US Bancorp. AutovaxID has entered into an indemnification agreement directly with US Bancorp that provides for indemnification in the event of tax
credit recapture from events caused by AutovaxID. AutovaxID is contractually required to maintain the following covenants to avoid tax credit recapture: (i) AutovaxID shall maintain its status as a qualified active low-income business;
(ii) At least fifty percent (50%) of the use of the tangible property of the AutovaxID (whether owned or leased) will be within the low-income community as defined by

Section 45D(e) of the U.S. Tax Code; (iii) At least fifty percent (50%) of the services performed for AutovaxID by its employees will be within low-income community as defined by Section 45D(e) of
the U.S. Tax Code; (iv) Less than five percent (5%) of the average of the unadjusted bases of the property of AutovaxID will be attributable to collectibles (as defined in Section 408(m)(2) of the Code, and which includes any work of
art; any rug or antique; any metal or gem; any stamp or coin; and any alcoholic beverage) other than collectibles that are held primarily for sale to customers in the ordinary course of business; (v) Less than five percent (5%) of the
average of the unadjusted



62



---

##### Table of Contents

bases of the property of AutovaxID will be attributable to nonqualified financial property (as defined in
Section 1397C(e) of the Code and in Section 1.45D-1(d)(4)(i)(E) of the Regulations, and which includes debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities and
other similar property); (vi) No part of the business activities of AutovaxID will consist of the operation of any private or commercial golf course, country club, massage parlor, hot tub facility, or suntan facility, race track or other
facility used for gambling, or store the principal business of which is the sale of alcoholic beverages for consumption off premises; (vii) No part of AutovaxIDs business activities will include the rental to others of residential rental
property (the term residential rental property is defined in Section 168(e)(2)(A) of the Code as meaning any building or structure if eighty percent (80%) or more of the gross rental income from such building or structure for
the taxable year is rental income from dwelling units); (viii) The predominant trade or business of AutovaxID will not include the development or holding of intangibles for sale or license, as provided under Section 1.45D-1(d)(5)(iii) of
the Regulations; (ix) Farming (within the meaning of Section 2032A(e)(5)(A) or (B) of the Code) will not be an activity of AutovaxID; (x) AutovaxID will generate revenues by the date of December 8, 2009; (xi) AutovaxID shall
not discontinue conducting business, shall not materially change the nature of its business, and shall not materially change the manner in which its business activities are conducted, other than changes in the nature of its business or the manner in
which it conducts its business that do not cause the making of the Loan by the Lender to cease to constitute a qualified low-income community investment as such term is used in Section 45D of the Code (as determined by the Lender in
its good faith judgment and based upon the advice of counsel); (xii) AutovaxID will not be a bank, credit union or other financial institution; (xiii) AutovaxID will not maintain a qualified low-income building under Section 42 of the
Code; (xiv) AutovaxID will not become a single-member entity treated as disregarded as separate from its owner for federal income tax purposes, nor be liquidated or merged into another entity without the written consent of St. Louis New Market
Tax Credit Fund II, LLC; and (xv) AutovaxID and Biovest will operate consistently with the License and Asset Purchase Agreement between AutovaxID and Biovest, and will not amend such agreement without prior written consent of St. Louis New
Market Tax Credit Fund II, LLC. An example of an event that would not cause a recapture is changes in the Internal Revenue Code that results in such recapture. The total indemnification amount could be $3.12 million (representing 39% of the $8.0
million qualified investment). However, in accordance with Financial Interpretation 45 Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of the Indebtedness of Others, the conditions and events
that could result in recapture are within AutovaxIDs control. Therefore, this potential liability is not reflected in the consolidated financial statements.

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

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



63



---

##### Table of Contents

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

Loans from Pulaski Bank. On January 16, 2007, Biovest closed an amended and restated loan transaction (the Loan) with Pulaski,
pursuant to which Pulaski loaned the sum of $1 million to Biovest pursuant to an unsecured Promissory Note (the Note). The maturity date of this Note (pursuant to an extension) is June 30, 2008. Biovest issued warrants to purchase
25,000 shares of Biovests common stock as a loan origination fee. The Note is guaranteed by entities and individuals affiliated with the Company or Biovest. Biovest has entered into Indemnification Agreements with each of the guarantors.
Biovest issued to the guarantors warrants to purchase an aggregate total of 1,388,636 shares of Biovest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. The Note is an unsecured obligation of Biovest and is subordinated to Biovests outstanding
loan to Laurus.



64



---

##### Table of Contents

On March 22, 2007, Biovest entered into a short term financing transaction (the Loan) with Pulaski,
pursuant to which Pulaski agreed to loan up to $750,000 to Biovest pursuant to an unsecured Promissory Note (the Note). The Note as extended, with interest at the rate of the prime rate minus .05% (7.75% per annum initially) became due on
May 21, 2007. On May 3, 2007, Biovest entered into a renewal of the Note, pursuant to which Pulaski and Biovest extending the maturity date of the Note from April 22, 2007 to May 21, 2007. In consideration of this extension,
Biovest paid additional closing fees relating to the loan transaction. The Notes maturity date subsequently been extended to June 30, 2008. The Note is guaranteed by entities and individuals affiliated with Biovest. Biovest has entered
into Indemnification Agreements with each of the guarantors. Biovest issued to the guarantors warrants to purchase an aggregate total of 409,090 shares of Biovests Common Stock, par value $0.01 per share, at an exercise price of $1.10 per
share (the Guarantor Warrants). The Guarantor 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. Under the terms
of the Note, $18,750 out of the gross proceeds of the Initial Borrowing was paid to Pulaski to cover closing fees relating to the transaction. The Company issued to Pulaski a warrant (the Pulaski Warrant) to purchase up to 25,000 shares
of the Companys Common Stock, par value $0.01 per share, at an exercise price of $1.10 per share. The Pulaski Warrant will expire on March 21, 2012. Under the terms of the Pulaski Warrant, Pulaski shall have piggy-back registration rights
for the shares underlying the Warrant. On February 14, 2008, Biovest paid $750,000 to Pulaski to reduce the outstanding principal balance on the two Pulaski Notes, and restated Notes were executed, resulting in the current aggregate principal
balance of $1,050,000.

Line of Credit with Hopkins Capital Group II, LLC. In June 2005, we borrowed an aggregate of $0.6 million in the form of a
bridge loan from HCGII. Francis E. ODonnell, Jr., M.D., our Chief Executive Officer and Chairman, is the sole member of HCGII, and several irrevocable trusts established by Dr. ODonnell collectively constitute the largest
equity owners of HCGII. The June 2005 bridge loan was evidenced by an unsecured interest-free promissory note that was due on the earlier of August 31, 2005 or the closing of this offering. A total of $0.6 million in principal was outstanding
under this bridge loan as of June 30, 2005, and from July 1, 2005 through August 16, 2005, additional advances in the amount of $3.6 million were made by HCGII under this loan.

In August 2005, we consolidated these borrowings into a new bridge loan agreement with HCGII that provided for the Company to have aggregate borrowing availability of up
to $7.5 million in principal amount at an interest rate of 4.25% per annum (the Line of Credit). In connection with this agreement, the $4.2 million advanced under the previous HCGII bridge loans was converted into an obligation
under the Line of Credit. The Line of Credit (including all accrued interest) will become due upon the earlier of December 31, 2008 or the completion by our company of a debt or equity financing that results in proceeds of more than $35.0
million (net of underwriting discounts, commissions, or placement agent fees). We may prepay the bridge loan at any time without penalty or premium. Notwithstanding the foregoing, on the date on which the Line of Credit becomes due or on which we
desire to prepay the loan, we must not be in default under our credit facility with Laurus, and the remaining balance under the Laurus credit facility at such time must be $2.5 million or less. If both of these conditions are not satisfied, then the
Line of Credit will not become due and cannot be paid until the first day on which both of these conditions are satisfied. Currently, the amount due Laurus under the Laurus credit facility exceeds $2.5 million.

Under the August 2005 Line of Credit with HCGII, the Company has borrowed $1.7 million as of September 30, 2007 and subsequent to this date has made payments to
HCGII of $.7 million. As of December 31, 2007, we have the right to borrow up to $6.5 million in the aggregate upon ten days prior written notice to HCGII. Provided, however, that our right to borrow any amounts in excess of $5.0 million
is conditioned upon us either being in default under our credit facility with Laurus or having less than $5.0 million cash on hand at the time of the advance or with the consent of Laurus. Loan under the Line of Credit is unsecured and bears
interest at a rate equal to 4.25% per annum, simple interest. No payments of principal or interest are due until December 31, 2008, the maturity date of the loan. The HCGII Line of Credit is subordinate to the Laurus credit facility and
the McKesson loans, provided that we may repay the bridge loan prior to the full satisfaction of our obligations to Laurus so long as the above-described conditions are satisfied.

On May 15, 2006, HCGII elected to convert $3.3 million of outstanding principal and interest into 412,892 shares at $8.00 per share which was an approximate 40% premium over the market price at conversion. During
the six months ended March 31, 2008, the outstanding balance was paid by the Company in cash along with accrued interest.

Credit Facility with
Southwest Bank of St. Louis f/k/a Missouri State Bank. In addition to the Laurus credit facility, in December 2005, we secured a $3.0 million subordinated revolving credit agreement with Southwest. In March of 2006 we were granted an incremental
$1.0 million expansion of the existing credit facility, bringing to total credit facility to $4.0 million. This loan bears interest at prime per annum and has a March 31, 2008 maturity date. The agreement is secured by the accounts receivable
and inventory of our Accentia Pharmaceuticals subsidiary. Additionally, the agreement is secured by assets and personal guarantees of the Francis E. ODonnell Jr. Irrevocable Trust #1, Steven Stogel and Dennis Ryll (shareholders of our
Company). As of March 31, 2008, all of the $4.0 million credit facility had been drawn and was outstanding.



65



---

##### Table of Contents

Our level of debt affects our operations in several important ways, including the following:



| |  |  | a significant portion of our cash flow from operations is likely to be dedicated to the payment of the principal of and interest on our indebtedness;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions may be limited;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be unable to refinance our indebtedness on terms acceptable to us or at all;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | our cash flow may be insufficient to meet our required principal and interest payments; and we may default on our obligations and the lenders may foreclose on their
security interests that secure their loans.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Private Placement of Convertible Debentures

September 2006 Private Placement

The September 2006 private
placement of $25.0 million in principal amount of 8% Secured Convertible Debentures due September 29, 2010 (September 2006 Debentures) resulted in gross proceeds of $23.5 million after placement agent fees of $1.5 million but before
other expenses associated with the transaction.

The September 2006 Debentures are convertible at any time at the option of the holder into shares of our
common stock at $2.60 per share, subject to adjustment for stock splits, stock dividends, and the like. Interest is payable quarterly in arrears in cash, or, at our option, in shares of our common stock. From and after an event of default under the
September 2006 Debentures and for so long as the event of default is continuing, the September 2006 Debentures will bear default interest at a rate of 18% per annum.

Beginning October 1, 2007, and on the 1stof each month thereafter, we were required to redeem 1/37thof the face value of the September 2006 Debentures in
cash or, at our election, with shares of our common stock, shares of Biovest common stock held by us, or a combination thereof. On October 31, 2007, we and holders of 84% of the September 2006 Debentures agreed to defer required monthly
redemption payments under the September 2006 Debentures from November 1, 2007 through May 1, 2008 and to allow any unconverted balance of those amounts to be redeemed on the Maturity Date of the September Debentures.

As a part of the September 2006 Debentures, we issued warrants to the purchasers of the September 2006 Debentures giving them the right to purchase up to an aggregate of
3,136,201 shares of our common stock at an exercise price of $2.75 per share, provided that such warrants may be alternatively exercised for shares of Biovest common stock held by us at an exercise price of $1.10 per share. The warrant exercise
prices are subject to adjustment for stock splits, stock dividends, and the like.

February 2007 Private Placement

The February 2007 private placement of $24.7 million in principal amount of 8% Secured Convertible Debentures is due four years from the date of issuance (the
February 2007 Debentures).

The February 2007 Debentures are convertible at any time at the option of the holder into shares of our common
stock at an initial price of $2.67 per share, subject to adjustment for stock splits, stock dividends, and the like.

Beginning on March 1, 2008, and on the 1stof each month thereafter, we may redeem 1/37thof the face value of the February 2007 Debentures in cash or, at our election, with shares of our common stock.

As a part of the February 2007 Debentures, we issued warrants to the purchasers of the February 2007 Debentures initially giving them the right to purchase up to an
aggregate of 2.2 million shares of our common stock at an exercise price of $2.94 per share (the Long Term Warrants) and an aggregate of 3.1 million shares of our common stock at an exercise price of $2.67 per share (the
Short Term Warrants and, together with the Long Term Warrants, the February 2007 Warrants).

In connection with the February 2007
Debentures, we entered into a Registration Rights Agreement under which we filed a registration statement with the SEC covering the resale of the shares of our common stock issuable pursuant to the February 2007 Debentures and Short Term Warrants.
The registration statement was declared effective on July 17, 2007. Included in the registration statement are short term warrants which were to expire on September 15, 2007; however, they were extended through October 19, 2007. On
October 19, 2007, the Company engaged in an effort to have the holders exercise, the short-term warrants in connection with the February 2007 Debentures. The Short-Term Warrants which, as amended, expired on October 19,
2007.



66



---

##### Table of Contents

As a consequence of this effort, we received an aggregate of $5.6 million in cash from the exercise of the Short-Term
Warrants at $2.67 per share, 2,568,564 Short-Term Warrants expired unexercised and we also issued additional warrants to certain of the holders of the February 2007 Debentures to purchase an additional 1,895,133 shares of our Common Stock. These
additional warrants have an exercise price of the $2.67 per share and a term expiring on the first to occur of January 19, 2009 or three days following notice of our common stock trading at $6 per share based on a 10-day volume weighted
average.

Credit Facilities with the Valens Funds

On October 30, 2007, Biovest completed a financing transaction with the Valens Funds. Pursuant to this transaction, the Valens Funds purchased from Biovest two secured promissory notes in the aggregate principal amount of $500,000 and
entered into two royalty agreements whereby the Valens Funds have been granted 2% royalty interests in the worldwide net commercial sales of Biovests biologic products. The notes are non-amortizing and accrue interest at prime plus 2%, with a
minimum of 9% interest. Interest is payable monthly in arrears, commencing November 1, 2007. The principal balance of both notes is due upon maturity on March 31, 2009.

On December 10, 2007, Biovest completed a financing transaction with the Valens Funds, both of which are subsidiary companies of Laurus, pursuant to which the Valens Funds purchased from Biovest two secured
promissory notes in the aggregate principal amount of $8,500,000 and entered into two royalty agreements whereby the Valens Funds have been granted royalty interests in the worldwide net commercial sales of the Biovests biologic products. The
notes are non-amortizing, bear interest at prime plus 2.0%, with a minimum interest rate of 11% and are payable in a single payment of principal and accrued interest on June 5, 2008. The obligations pursuant to the Notes are secured by a lien
against all assets of Biovest and its subsidiaries and are guaranteed by Biovest and its subsidiaries. Proceeds of the notes, after designated payments to the Valens Funds and Laurus in payment of outstanding obligations and prepayment of certain
scheduled principal and interest payments, were disbursed into a restricted account and will be released to Biovest based upon an agreed schedule. These notes also contain a default put option whereby upon an event of default Biovest would be
required to pay to the Valens Funds a default payment of 130% of the outstanding principal, interest and fees due. Biovest has concluded that this feature constitutes a derivative liability that requires accounting recognition at fair value. Biovest
has utilized a probability-based, discounted cash flow approach to value the put.

Cash Flows for the Six Months Ended March 31, 2008

For the six months ended March 31, 2008, we used $16.0 million in cash to fund our operating activities of which $5.8 million was Biovests use
for operating activities. The use for operating activities included a net loss of $33.0 million, $3.5 million used to reduce accounts payable, $0.6 million return of customer deposits, $0.5 million unbilled revenues and unearned revenue, and $0.1
increase in prepaid expenses. This was offset by sources of cash of, $1.5 million accounts receivable, $0.6 million inventories, and $0.1 million other assets.

This use of cash was offset by non-cash increases of approximately $19.5 million related to $4.0 million accretion of debt discounts, $0.3 million accretion of royalty liability, $2.0 million for change in fair market value of convertible
debentures, $2.6 million of stock-based compensation, $8.3 million accretion of capitalized finance costs, $0.8 million issuance of common stock for services, $0.6 million amortization, $0.4 million of depreciation and $1.8 million in loss on
extinguish of debt, offset by a $1.1 million derivative gain, and a $0.2 million gain in non-cash earnings from variable interest entities.

We had net
cash inflow from investing activities of $1.4 million for the six months ended March 31, 2008, primarily consisting of $1.6 million in the release of restricted cash, offset by $0.2 million to acquire intangible assets.

We had net cash flows from financing activities of $14.5 million for the six months ended March 31, 2008. Proceeds from of sale of convertible preferred stock were
$8.7 million, proceeds from notes payable were $8.6 million, proceeds from the exercise of stock warrants were $4.6 million, proceeds from notes payable, proceeds from notes payable, related party were $0.3 million, and from long-term debt of $0.5
million. This was offset by payments on notes payable and long-term debt of $4.2 million, net payments to the line of credit of $0.6 million, payments of deferred financing costs of $1.1 million, payments on line of credit, related party of $1.7
million, $0.5 million royalty payment, and payments to related party $0.2 million.

Our net working capital deficit at March 31, 2008 increased from
September 30, 2007 by $15.2 million to $67.5 million, which was attributed largely to our year-to-date fiscal 2008 loss and increase in current maturities of long-term debt and notes payable.



67



---

##### Table of Contents

Cash Flows for the Six Months Ended March 31, 2007

For the six months ended March 31, 2007, we used $21.9 million in cash to fund our operating activities of which $6.8 million was Biovests use for operating
activities. This consisted primarily of a net loss of $38.7 million and a net decrease in working capital of $24.7 million primarily due from changes of $0.9 million accounts payable, $0.6 million prepaid expenses, $1.5 million net inventory, $1.7
million accrued expenses, $0.4 million in net unbilled receivables. This use of cash was offset by non-cash increases of approximately $20.7 million related to a $8.8 million loss on financing transaction, $6.9 million for change in fair market
value of convertible debentures, $2.0 million to the issuance of common stock warrants and finance costs, $2.2 million of stock-based compensation, $1.2 million loss on sales of assets, $8.2 million derivative gain, $1.3 million accretion of debt
discount, $0.5 million in amortization of intangibles, $0.3 million of depreciation.

We had net cash flows from investing activities of $2.8 million for
the six months ended March 31, 2007, primarily consisting of $2.4 million proceeds from restricted cash, $4.8 million in proceeds from the sale of assets. This was offset by payments of $4.3 million in cash used to acquire product rights and
other intangibles, and for improvements to our Worcester laboratory facility, computer equipment, and office improvement of $0.1 million.

We used net cash
flows from financing activities of $19.4 million for the six months ended March 31, 2007. Proceeds from convertible debentures were $18.8 million. Proceeds of $2.4 million from a non-controlling investment in a variable interest entity.

Our net working capital at March 31, 2007 decrease from September 30, 2006 by $24.7 million to $45.0 million, which was attributed largely to our
year-to-date fiscal 2007 loss and increase in current maturities of long-term debt.

Funding Requirements

We expect to devote substantial resources to further our commercialization efforts for our late-stage clinical products in our Biopharmaceutical Products and Services
division, including regulatory approvals of SinuNase, BiovaxID and Revimmune, as well as the commercial launch of additional pharmaceutical products. Our future funding requirements and our ability to raise additional capital will depend on factors
that include:



| |  | the timing and amount of expense incurred to complete our clinical trials;
|- |  | --------------------------------------------------------------------------



| |  | the costs and timing of the regulatory process as we seek approval of our products in development;
|- |  | --------------------------------------------------------------------------------------------------



| |  | the advancement of our products in development;
|- |  | -----------------------------------------------



| |  | the timing, receipt and amounts of milestone payments to our existing development partners;
|- |  | -------------------------------------------------------------------------------------------



| |  | our ability to generate new relationships with industry partners whose business plans seek long-term commercialization opportunities which allow for up-front
deposits or advance payments in exchange for license agreements;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the timing, receipt and amount of sales, if any, from our products in development in our Biopharmaceutical Products and Services segment;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  | the timing, receipt and amount of sales in our Specialty Pharmaceuticals segment;
|- |  | ---------------------------------------------------------------------------------



| |  | the cost of manufacturing (paid to third parties) of our licensed products, and the cost of marketing and sales activities of those products;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  | the continued willingness of our vendors to provide trade credit on historical terms;
|- |  | -------------------------------------------------------------------------------------



| |  | the costs of prosecuting, maintaining, and enforcing patent claims, if any claims are made;
|- |  | -------------------------------------------------------------------------------------------



| |  | our ability to maintain existing collaborative relationships and establish new relationships as we advance our products in development; and
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  | the receptivity of the financial market to biopharmaceutical companies.
|- |  | -----------------------------------------------------------------------



68



---

##### Table of Contents

Contractual Obligations and Off-Balance Sheet Arrangements

The following chart summarizes our contractual payment obligations as of March 31, 2008. The long- and short-term debt is reflected as liabilities on our
consolidated balance sheet as of March 31, 2008. Operating leases are accrued and paid on a monthly basis.

The other contractual obligations
reflected in the table include obligations to purchase product candidate materials contingent on the delivery of the materials and to fund various clinical trials contingent on the performance of services. These obligations also include long-term
obligations, including milestone payments that may arise under agreements that we may terminate prior to the milestone payments being due. The table excludes contingent royalty payments that we may be obligated to pay in the future.



|                           |  |                        |        |                 |   |                    |  |                 |       |       |   |   |  |   |       
|-------------------------- |  | ---------------------- | ------ | --------------- | - | ------------------ |  | --------------- | ----- | ----- | - | - |  | - | ------
|                           |  | Payments Due by Period
|                           |  | Less thanOne Year      |        | One toTwo Years |   | Three toFive Years |  | AfterFive Years |       | Total
|                           |  | (in thousands)        
|Long-term debt(a)          |  | $                      | 51,610 |                 | $ | 11,047             |  | $               | 8,508 |       | $ |  |  | $ | 71,165
|Employment agreements      |  |                        | 1,638  |                 |   | 937                |  |                 |      |       |   |  |  |   | 2,575 
|Operating lease agreements |  |                        | 2,343  |                 |   | 2,987              |  |                 | 406   |       |   |  |  |   | 5,736 
|Milestone payments         |  |                        |       |                 |   | 250                |  |                 |      |       |   |  |  |   | 250   
|                           |  |                        |        |                 |   |                    |  |                 |       |       |   |   |  |   |       
|                           |  | $                      | 55,591 |                 | $ | 15,221             |  | $               | 8,914 |       | $ |  |  | $ | 79,726
|                           |  |                        |        |                 |   |                    |  |                 |       |       |   |   |  |   |       



|(a) | Includes interest on long-term debt.
|--- | ------------------------------------

The above table does not include
any additional amounts that we may be required to pay under license or distribution agreements upon the achievement of scientific, regulatory, and commercial milestones that may become payable depending on the progress of scientific development and
regulatory approvals, including milestones such as the submission of drug approval applications to the FDA and approval of such applications. While we cannot predict when and if such events will occur, depending on the successful achievement of such
scientific, regulatory and commercial milestones, we may owe up to $8.0 million in fiscal year 2009.

Under the September 2004 Royalty Stream Purchase
Agreement with Pharmaceutical Products Development (PPD), as described above, if PPD does not receive at least $2.5 million in royalties from SinuNase under this agreement by 2009, then PPD has the right to terminate the agreement. In
the event of such a termination, we will be required to refund the $2.5 million that PPD paid to us upon the execution of the agreement in consideration of the future royalty rights granted to them under the agreement.

During the six months ended March 31, 2008, we made no milestone payments.

We do not maintain any off-balance sheet financing arrangements.



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

We are
exposed to various market risks as a part of our operations, and we anticipate that this exposure will increase as a result of our planned growth. In an effort to mitigate losses associated with these risks, we may at times enter into derivative
financial instruments, although we have not historically done so. These may take the form of forward sales contracts, option contracts, foreign currency exchange contracts, and interest rate swaps. We do not, and do not intend to, engage in the
practice of trading derivative securities for profit.

Interest Rates

Some of our funds may be invested in short-term, interest-bearing, investment grade securities. The value of these securities will be subject to interest rate risk and could fall in value if interest rates rise. Due
to the fact that we hold our excess funds in cash equivalents, a 1% change in interest rates would not have a significant effect on the value of our cash equivalents.

Foreign Exchange Rates

While we have operations in Germany, these operations are not significant to our
overall financial results. Therefore, we do not believe fluctuations in exchange rates would have a material impact on our financial results.



69



---

##### Table of Contents

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

(a) Evaluation of Disclosure Controls
and Procedures. Our management, with the participation of our principal executive officer and principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this quarterly report (the Evaluation Date). Based on such evaluation, our principal financial officer
and principal executive officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective and designed to ensure that the information relating to our company (including our consolidated subsidiaries)
required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.

This Report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation
by the Companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only managements report in this report.

(b) Changes in Internal Controls. There was no change in our internal control over financial reporting (as defined in Rules 13a15(f) and 15d-15(f)
under the Exchange Act) that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, such controls.

Part IIOTHER INFORMATION



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

The Companys subsidiary, Analytica is a
party to a litigation brought against a former employee, alleging breach of covenants not to compete, breach of confidentiality agreements and misappropriation of proprietary information. This matter is pending in the Supreme Court of New York, New
York County. The defendant has filed an Answer containing counterclaims alleging that he is owed contractual bonus and other compensation and seeking damages for wrongful termination against Analytica, the Company and an officer of the Company. We
filed a motion seeking to dismiss all claims naming the Company and the Companys officer personally, and to dismiss certain claims against all defendants. In June 2007, the Court granted our motion and dismissed defendants counterclaims
against our officer with prejudice, and dismissed all other counterclaims as well, allowing defendant an opportunity to replead by July 31, 2007. The defendant refiled an Amended Counterclaim in July 2007, and we have filed a motion seeking to
dismiss virtually all claims in the Amended Counterclaim and argument on this motion is scheduled for May 2008. We have indicated that we plan to pursue our affirmative claims in this matter vigorously and will assert all available defenses against
the counterclaims, which we believe are without merit.

Based upon advice of counsel and its own analysis, we believe that there is no likelihood of
exposure to material liability on account of these pending litigations. Therefore, no amounts are currently accrued for the above litigations.

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

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



70



---

##### Table of Contents

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

We anticipate that we will need substantial
additional funding in the future, and if we are unable to raise capital when needed, we would be forced to delay, reduce, or eliminate our product development programs or commercialization efforts.

Developing biopharmaceutical products, conducting clinical trials, establishing manufacturing capabilities, and marketing developed products is expensive. We anticipate
that we will need to raise substantial additional capital in the future in order to complete the commercialization of SinuNase following the submission of the NDA and to fund the development and commercialization of Revimmune and our specialty
pharmaceutical product candidates. We have received a report from our independent registered public accounting firm on our consolidated financial statements for our fiscal years ended September 30, 2007, 2006, 2005, in which our auditors have
included explanatory paragraphs indicating that our significant net losses and working capital deficiency cause substantial doubt about our ability to continue as a going concern.

We have announced that the analysis of the unblinded primary endpoint datas from the Phase 3 clinical trial of SinuNase failed to achieve statistical significance as to its primary endpoint.

On March 24, 2008 we announced that the analysis of the unblinded primary endpoint data available to us at
that date from the Companys Phase 3 clinical trial evaluating the Companys intranasal antifungal lavage, SinuNase (topical amphotericin B 0.01% suspension) did not show the
required level of statistical significance when comparing the SinuNase arm to the control arm.

If we breach certain representations, warranties and
covenants in the instruments governing our 2006, 2007 and 2008 financings or in the related agreements thereto, we may be subject to penalty fees and other repercussions, including acceleration of the outstanding principal amounts of these
securities.

In each of our 2006, 2007 and 2008 financings, we made several representations, warranties and covenants to the investors in these
offerings. In the event we breach any of these representations, warranties or covenants, certain monetary or other penalties may be imposed on us. In some cases, the investors may be permitted to accelerate the principal amounts owed under these
securities. An event of default under one of the financings may in certain circumstances result in an event of default under the instruments issued in one or more of the other financings. Such an occurrence would substantially harm our financial
viability and our ability to continue as a business.

We expect to finance future cash needs through public or private equity offerings, debt financings,
or corporate collaboration and licensing arrangements or the sale of assets that are considered to not be critical to our development of SinuNase or Revimmune. To the extent that we raise additional funds by issuing equity securities, our
stockholders may experience additional dilution, and debt financing, if available, may involve restrictive covenants. We cannot be certain that additional funding will be available on acceptable terms, or at all, in which case 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. We may seek to access the public or private equity markets whenever conditions are favorable, even if we
do not have an immediate need for additional capital at this time.

Biovest will need substantial additional funding from sources other than the Company
in the future, and if Biovest is unable to raise capital when needed, it would be forced to delay, reduce, or eliminate its product development programs or commercialization efforts or consider disposing of assets or divisions not deemed critical to
the ongoing clinical trial of BiovaxID.

Our majority owned subsidiary Biovest received a report from its independent registered public accounting firm
on Biovests consolidated financial statements for its fiscal years ended September 30, 2007 and 2006 in which its auditors have included explanatory paragraphs indicating that Biovests significant net losses and working capital
deficiency cause substantial doubt about Biovests ability to continue as a going concern. As of March 31, 2008, Biovest had cash of $1.0 million, of which $0.4 million was restricted (Note 4). Under the terms of certain agreements,
the Company is prohibited from providing any further loans to or investments in to Biovest. Accordingly, Biovest will need to raise substantial additional capital from sources other than the Company in the near future in order to continue the
clinical trials for BiovaxID and continue its operations. Biovest is currently seeking additional financing from a number of sources, including the sale of Biovest equity or debt securities, strategic collaborations, recognized research funding
programs, as well as domestic and/or foreign licensing of Biovests vaccine. Biovest management is currently in the process of exploring various financing alternatives, and has hired investment consultants to assist in these efforts. If our
Biovest subsidiary raises funds through the issuance of equity securities, our equity interest in Biovest could be substantially diminished. In addition, if Biovest raises additional funds through collaboration and licensing arrangements, it may be
necessary to relinquish some rights to our technologies or our product candidates or grant licenses on terms that are not favorable to us. We cannot be certain that additional funding will be available to Biovest on acceptable terms, or at all.



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

Unregistered Sales of Equity Securities

On February 14, 2008, the Company entered into an understanding with Rocke McClean
Sbar, P.A. (Rocke), whereby the Company agreed to issue to Rocke and Rocke agreed to accept a total of 6,094 shares of the Companys common stock in full payment of outstanding invoices



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

None.



71



---

##### Table of Contents

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

On
February 28, 2008, the Company held its Annual Meeting of Shareholders.

The shareholders elected Class III Directors Steven R. Arikian and William S.
Poole to hold office until the Companys 2011 Annual Meeting or until their successors are duly elected and qualified. All other Directors shall continue to hold office until the end of their terms.

In addition to the election of Directors (Proposal No. 1), the Shareholders ratified the adoption of the Companys 2008 Equity Incentive Plan (Proposal No. 2) and
ratified that the Company may issue more than 19.99% of the Companys common shares outstanding on January 18, 2008 pursuant to the provisions of the Securities Purchase Agreement dated January 18, 2008 (Proposal No. 3).

Proposal No. 1 Election of Directors



|                  |  |            |  |             |   |  |          |  |                  |  
|----------------- |  | ---------- |  | ----------- | - |  | -------- |  | ---------------- | -
|                  |  | For        |  | % Voted For |   |  | Withheld |  | % Voted Withheld |  
|Steven R. Arikian |  | 31,168,469 |  | 99.28       | % |  | 231,163  |  | 0.07             | %
|John P. Dubinsky  |  | 31,162,157 |  | 99.26       | % |  | 231,475  |  | 0.07             | %

Proposal No. 2 Ratify the Adoption of the 2008 Equity Incentive Plan



|                   |  |            |  |           |  |         |  |    
|------------------ |  | ---------- |  | --------- |  | ------- |  | ---
|                   |  | For        |  | Against   |  | Abstain |  | BNV
|Total Shares Voted |  | 18,362,878 |  | 1,588,261 |  | 76,840  |  |    

Proposal No. 3 Ratify that the Company may issue more than 19.99% of the Companys common shares
outstanding on January 18, 2008 pursuant to the provisions of the Securities Purchase Agreement dated January 18, 2008.



|                   |  |            |  |           |  |         |  |    
|------------------ |  | ---------- |  | --------- |  | ------- |  | ---
|                   |  | For        |  | Against   |  | Abstain |  | BNV
|Total Shares Voted |  | 18,362,878 |  | 1,588,261 |  | 76,840  |  |    



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

On April 15, 2008, the Company received notice
from The NASDAQ Stock Market, notifying the Company that it is not in compliance with NASDAQ Rule 4450(b)(1)(A), which requires a listed security to maintain a minimum $50 million market capitalization for continued trading on the NASDAQ Global
Market. In order to comply with this listing requirement, Accentia needed to maintain a minimum $50 million market value for at least 10 consecutive business days before May 15, 2008. To resolve this matter, the Company has filed an application to
transfer the listing of the Companys common stock from the NASDAQ Global Market to the NASDAQ Capital Market. The Company filed the application on May 14, 2008 and expects to maintain its current NASDAQ Global Market status pending completion
of the transfer application.



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

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



|       |  |                                                                                                                    
|------ |  | -------------------------------------------------------------------------------------------------------------------
|Number |  | Description of Document                                                                                            
|10.1   |  | February 14, 2008 Agreement between the Company and Rocke, McLean & Sbar, P.A.                                     
|       | 
|10.2   |  | Amendment to Sublicense Agreement between Revimmune, LLC and the Company dated April 18, 2008                      
|       | 
|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.                          



72



---

##### Table of Contents

SIGNATURE

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



|                   |  |  |  |                                                               
|------------------ |  |  |  | --------------------------------------------------------------
|                   |  |  |  | ACCENTIA BIOPHARMCEUTICALS, INC. (Registrant)                 
|                   |  | 
|Date: May 16, 2008 |  |  |  | /s/ Francis E. ODonnell, Jr.                                 
|                   |  |  |  | Francis E. ODonnell, Jr., M.D.                               
|                   |  |  |  | Chief Executive Officer; Chairman of the Board; Director      
|                   |  |  |  | (Principal Executive Officer)                                 
|                   |  | 
|Date: May 16, 2008 |  |  |  | /s/ Alan M. Pearce                                            
|                   |  |  |  | Alan M. Pearce                                                
|                   |  |  |  | Chief Financial Officer; Director                             
|                   |  |  |  | (Principal Financial Officer and Principal Accounting Officer)



73