##### 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 quarterly period ended March 31, 2009

OR



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

Commission File Number 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)





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

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

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



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

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

As of August 16, 2010, there were 58,048,208 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 in ITEM
1A. RISK FACTORS of our Form 10-K for the fiscal year ended September 30, 2008 and those set forth in our other filings with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



2



---

##### Table of Contents

INDEX

ACCENTIA BIOPHARMACEUTICALS, INC.

(DEBTOR-IN-POSSESSION)



|           |  |                                                                                                                         |  |     
|---------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                         |  | Page
|PART I.    |  | FINANCIAL INFORMATION                                                                                                   |  |     
|ITEM 1.    |  | Financial Statements                                                                                                    |  |     
|           |  | Condensed Consolidated Balance Sheets as of March 31, 2009 (unaudited) and September 30, 2008                           |  | 4   
|           |  | Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 
31, 2009 and 2008 (unaudited) |  | 6   
|           |  | Condensed Consolidated Statement of Stockholders Deficit for the Six Months Ended March 
31, 2009 (unaudited)          |  | 8   
|           |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 
31, 2009 and 2008 (unaudited)           |  | 9   
|           |  | Notes to Condensed Consolidated Financial Statements                                                                    |  | 11  
|ITEM 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                   |  | 43  
|ITEM 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                              |  | 63  
|ITEM 4T.   |  | Controls and Procedures                                                                                                 |  | 63  
|           |  |                                                                                                                        
|PART II.   |  | OTHER INFORMATION                                                                                                       |  |     
|ITEM 1.    |  | Legal Proceedings                                                                                                       |  | 63  
|ITEM 1A.   |  | Risk Factors                                                                                                            |  | 64  
|ITEM 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                             |  | 64  
|ITEM 3.    |  | Defaults Upon Senior Securities                                                                                         |  | 64  
|ITEM 4.    |  | (Removed and Reserved)                                                                                                  |  | 64  
|ITEM 5.    |  | Other Information                                                                                                       |  | 64  
|ITEM 6.    |  | Exhibits                                                                                                                |  | 66  
|Signatures |  | 67                                                                                                                     



3



---

##### Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                  |  |                           |            |                    |   |           
|------------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | ------------------ | - | ----------
|                                                                                                  |  | March 31, 2009(Unaudited) |            | September 
30,2008
|ASSETS                                                                                            |  |                           |            |                    |   |           
|Current assets:                                                                                   |  |                           |            |                    |   |           
|Cash and cash equivalents                                                                         |  | $                         | 1,026,661  |                    | $ | 1,229,087 
|Accounts receivable:                                                                              |  |                           |            |                    |   |           
|Trade, net of allowance for doubtful accounts of $10,031 at March 31, 2009 and September 30, 2008 |  |                           | 1,487,584  |                    |   | 1,674,085 
|Related party                                                                                     |  |                           | 121,390    |                    |   | 122,666   
|Inventories                                                                                       |  |                           | 574,270    |                    |   | 609,284   
|Unbilled receivables                                                                              |  |                           | 2,127,058  |                    |   | 2,215,270 
|Deferred finance costs                                                                            |  |                           |           |                    |   | 1,038,115 
|Prepaid expenses and other current assets                                                         |  |                           | 463,877    |                    |   | 515,332   
|Currents assets of discontinued operations                                                        |  |                           |           |                    |   | 574,387   
|                                                                                                  |  |                           |            |                    |   |           
|Total current assets                                                                              |  |                           | 5,800,840  |                    |   | 7,978,226 
|                                                                                                  |  |                          
|Goodwill                                                                                          |  |                           | 1,193,437  |                    |   | 1,193,437 
|Intangible assets                                                                                 |  |                           | 2,721,112  |                    |   | 4,385,954 
|Furniture, equipment and leasehold improvements, net                                              |  |                           | 398,020    |                    |   | 913,344   
|Deferred finance costs, less current portion                                                      |  |                           | 1,793,296  |                    |   | 1,497,445 
|Other assets                                                                                      |  |                           | 321,556    |                    |   | 329,241   
|Other assets from discontinued operations                                                         |  |                           | 12,159     |                    |   | 14,334    
|                                                                                                  |  |                           |            |                    |   |           
|                                                                                                  |  | $                         | 12,240,420 |                    | $ | 16,311,981
|                                                                                                  |  |                           |            |                    |   |           

(Continued)



4



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Continued)



|                                                                                                                                                                                             |  |                           |              |   |                   |   |              |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------------ | - | ----------------- | - | ------------ | -
|                                                                                                                                                                                             |  | March 31,
2009(Unaudited) |              |   | September 30,2008 |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                                        |  |                           |              |   |                   |   |              |  
|Liabilities not subject to compromise:                                                                                                                                                       |  |                           |              |   |                   |   |              |  
|Current liabilities:                                                                                                                                                                         |  |                           |              |   |                   |   |              |  
|Current maturities of long-term debt:                                                                                                                                                        |  |                           |              |   |                   |   |              |  
|Hybrid financial instrument at fair value                                                                                                                                                    |  | $                         |             |   |                   | $ | 5,116,978    |  
|Convertible debenture                                                                                                                                                                        |  |                           |             |   |                   |   | 3,585,472    |  
|Other long-term debt                                                                                                                                                                         |  |                           |             |   |                   |   | 18,423,143   |  
|Lines of credit                                                                                                                                                                              |  |                           |             |   |                   |   | 4,000,000    |  
|Accounts payable                                                                                                                                                                             |  |                           | 907,719      |   |                   |   | 8,670,678    |  
|Accrued expenses                                                                                                                                                                             |  |                           | 1,754,895    |   |                   |   | 3,215,661    |  
|Unearned revenues                                                                                                                                                                            |  |                           | 1,011,700    |   |                   |   | 1,217,934    |  
|Dividends payable                                                                                                                                                                            |  |                           |             |   |                   |   | 479,452      |  
|Notes payable                                                                                                                                                                                |  |                           |             |   |                   |   | 14,357,574   |  
|Notes payable, related parties                                                                                                                                                               |  |                           | 1,022,486    |   |                   |   | 223,915      |  
|Customer deposits                                                                                                                                                                            |  |                           | 153,057      |   |                   |   | 169,339      |  
|Derivative liabilities                                                                                                                                                                       |  |                           |             |   |                   |   | 24,778,671   |  
|Currents liabilities of discontinued operations                                                                                                                                              |  |                           |             |   |                   |   | 3,070,817    |  
|                                                                                                                                                                                             |  |                           |              |   |                   |   |              |  
|Total current liabilities                                                                                                                                                                    |  |                           | 4,849,857    |   |                   |   | 87,309,634   |  
|                                                                                                                                                                                             |  |                          
|Long-term debt, net of current maturities:                                                                                                                                                   |  |                           |              |   |                   |   |              |  
|Hybrid financial instrument at fair value                                                                                                                                                    |  |                           |             |   |                   |   | 1,910,060    |  
|Convertible debenture                                                                                                                                                                        |  |                           |             |   |                   |   | 13,025,971   |  
|Other long-term debt                                                                                                                                                                         |  |                           |             |   |                   |   | 62,299       |  
|Royalty liability, less current portion                                                                                                                                                      |  |                           |             |   |                   |   | 5,143,241    |  
|Other liabilities, related party                                                                                                                                                             |  |                           |             |   |                   |   | 2,241,188    |  
|                                                                                                                                                                                             |  |                           |              |   |                   |   |              |  
|Total liabilities not subject to compromise                                                                                                                                                  |  |                           | 4,849,857    |   |                   |   | 109,692,393  |  
|                                                                                                                                                                                             |  |                           |              |   |                   |   |              |  
|Liabilities subject to compromise                                                                                                                                                            |  |                           | 95,933,357   |   |                   |   |             |  
|Total liabilities                                                                                                                                                                            |  |                           | 100,783,214  |   |                   |   | 109,692,393  |  
|Non-controlling interest in variable interest entities                                                                                                                                       |  |                           | 4,264,439    |   |                   |   | 4,460,493    |  
|                                                                                                                                                                                             |  |                           |              |   |                   |   |              |  
|                                                                                                                                                                                             |  |                          
|Commitments and contingencies (Note 17)                                                                                                                                                      |  |                           |             |   |                   |   |             |  
|                                                                                                                                                                                             |  |                          
|Series A convertible redeemable preferred stock, $1.00 par value; 8,950 shares authorized; 8,529 and -0- shares issued and
outstanding at March 31, 2009 and September 30, 2008 respectively |  |                           | 3,796,592    |   |                   |   | 2,476,999    |  
|                                                                                                                                                                                             |  |                          
|Stockholders deficit:                                                                                                                                                                       |  |                           |              |   |                   |   |              |  
|Common stock, $0.001 par value; 300,000,000 shares authorized; 58,048,208 and 54,103,894 shares issued and outstanding at
March 31, 2009, and September 30, 2008 respectively                |  |                           | 58,048       |   |                   |   | 54,104       |  
|Treasury stock, 194,907 shares, March 31, 2009 and September 30, 2008                                                                                                                        |  |                           | (170,057     | ) |                   |   | (170,057     | )
|Additional paid-in capital                                                                                                                                                                   |  |                           | 204,305,103  |   |                   |   | 200,944,102  |  
|Accumulated deficit                                                                                                                                                                          |  |                           | (300,796,919 | ) |                   |   | (301,146,053 | )
|                                                                                                                                                                                             |  |                           |              |   |                   |   |              |  
|Total stockholders deficit                                                                                                                                                                  |  |                           | (96,603,825  | ) |                   |   | (100,317,904 | )
|                                                                                                                                                                                             |  |                           |              |   |                   |   |              |  
|                                                                                                                                                                                             |  | $                         | 12,240,420   |   |                   | $ | 16,311,981   |  
|                                                                                                                                                                                             |  |                           |              |   |                   |   |              |  

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



5



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                                                                                                        |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ----------- | - | --------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ----------- | -
|                                                                                                                                                        |  | For the Three Months EndedMarch 31, |             |   | For the Six Months
EndedMarch 31, |  
|                                                                                                                                                        |  | 2009                                |             |   | 2008                              |   |            | 2009 |  |   | 2008       |  
|Net Sales:                                                                                                                                              |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|Products                                                                                                                                                |  | $                                   | 719,855     |   |                                   | $ | 840,334    |      |  | $ | 1,122,420  |   |  | $ | 1,615,594   |  
|Services                                                                                                                                                |  |                                     | 2,537,256   |   |                                   |   | 3,061,231  |      |  |   | 4,829,862  |   |  |   | 5,864,883   |  
|                                                                                                                                                        |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|                                                                                                                                                        |  |                                     |             |  
|Total net sales                                                                                                                                         |  |                                     | 3,257,111   |   |                                   |   | 3,901,565  |      |  |   | 5,952,282  |   |  |   | 7,480,477   |  
|                                                                                                                                                        |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|                                                                                                                                                        |  |                                     |             |  
|Cost of sales:                                                                                                                                          |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|Products                                                                                                                                                |  |                                     | 428,015     |   |                                   |   | 500,026    |      |  |   | 751,779    |   |  |   | 931,593     |  
|Services                                                                                                                                                |  |                                     | 1,772,194   |   |                                   |   | 1,555,483  |      |  |   | 3,373,857  |   |  |   | 3,557,219   |  
|                                                                                                                                                        |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|                                                                                                                                                        |  |                                     |             |  
|Total cost of sales (exclusive of amortization of acquired product rights)                                                                              |  |                                     | 2,200,209   |   |                                   |   | 2,055,509  |      |  |   | 4,125,636  |   |  |   | 4,488,812   |  
|                                                                                                                                                        |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|                                                                                                                                                        |  |                                     |             |  
|Gross margin                                                                                                                                            |  |                                     | 1,056,902   |   |                                   |   | 1,846,056  |      |  |   | 1,826,646  |   |  |   | 2,991,665   |  
|                                                                                                                                                        |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|                                                                                                                                                        |  |                                     |             |  
|Operating expenses:                                                                                                                                     |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|Research and development                                                                                                                                |  |                                     | 296,654     |   |                                   |   | 2,656,686  |      |  |   | 746,574    |   |  |   | 6,472,286   |  
|Sales and marketing                                                                                                                                     |  |                                     | 42,900      |   |                                   |   | 66,164     |      |  |   | 73,368     |   |  |   | 105,723     |  
|General and administrative                                                                                                                              |  |                                     | 1,828,220   |   |                                   |   | 4,733,794  |      |  |   | 4,380,647  |   |  |   | 9,151,051   |  
|Impairment of intangible assets                                                                                                                         |  |                                     |            |   |                                   |   |           |      |  |   | 1,519,367  |   |  |   |            |  
|                                                                                                                                                        |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|                                                                                                                                                        |  |                                     |             |  
|Total operating expenses                                                                                                                                |  |                                     | 2,167,774   |   |                                   |   | 7,456,644  |      |  |   | 6,719,956  |   |  |   | 15,729,060  |  
|                                                                                                                                                        |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|                                                                                                                                                        |  |                                     |             |  
|Operating loss                                                                                                                                          |  |                                     | (1,110,872  | ) |                                   |   | (5,610,588 | )    |  |   | (4,893,310 | ) |  |   | (12,737,392 | )
|Other income (expense):                                                                                                                                 |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|Interest expense, including change in fair market value of convertible debentures                                                                       |  |                                     | (3,926,953  | ) |                                   |   | (4,138,680 | )    |  |   | (1,447,874 | ) |  |   | (17,089,192 | )
|Interest expense, net, related party                                                                                                                    |  |                                     |            |   |                                   |   | (2,492     | )    |  |   |           |   |  |   | (5,669      | )
|Loss on sale of assets                                                                                                                                  |  |                                     |            |   |                                   |   | (49        | )    |  |   |           |   |  |   | (1,196      | )
|Derivative (loss) gain                                                                                                                                  |  |                                     | (8,642,064  | ) |                                   |   | 3,359,781  |      |  |   | 8,591,678  |   |  |   | 1,057,062   |  
|Loss on extinguishment of debt                                                                                                                          |  |                                     |             |   |                                   |   | (383,895   | )    |  |   |            |   |  |   | (1,829,150  | )
|Other (expense) income                                                                                                                                  |  |                                     | (64,173     | ) |                                   |   | 292,916    |      |  |   | (427,797   | ) |  |   | 540,271     |  
|                                                                                                                                                        |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|                                                                                                                                                        |  |                                     |             |  
|(Loss) income before reorganization items, non-controlling interest in losses from variable interest entities, discontinued
operations and income taxes |  |                                     | (13,744,062 | ) |                                   |   | (6,483,007 | )    |  |   | 1,822,697  |   |  |   | (30,065,266 | )
|Reorganization items:                                                                                                                                   |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|Professional Fees                                                                                                                                       |  |                                     | (180,136    | ) |                                   |   |           |      |  |   | (434,136   | ) |  |   |            |  
|Provision for the rejection of lease (net of $43,553 gain on allowance for leasehold improvements)                                                      |  |                                     |            |   |                                   |   |           |      |  |   | (600,447   | ) |  |   |            |  
|Provision for indemnity agreements                                                                                                                      |  |                                     | (407,273    | ) |                                   |   |           |      |  |   | (916,364   | ) |  |   |            |  
|                                                                                                                                                        |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|                                                                                                                                                        |  |                                     | (587,409    | ) |                                   |   |           |      |  |   | (1,950,947 | ) |  |   |            |  
|Loss before non-controlling interest in variable interest entities                                                                                      |  |                                     | (14,331,471 | ) |                                   |   | (6,483,007 | )    |  |   | (128,250   | ) |  |   | (30,065,266 | )
|Non-controlling interest in losses from variable interest entities                                                                                      |  |                                     | 97,124      |   |                                   |   | 117,405    |      |  |   | 196,054    |   |  |   | 225,085     |  
|                                                                                                                                                        |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|(Loss) income before discontinued operations and income taxes                                                                                           |  |                                     | (14,234,347 | ) |                                   |   | (6,365,602 | )    |  |   | 67,804     |   |  |   | (29,840,181 | )
|Income (loss) from discontinued operations                                                                                                              |  |                                     | (11,641     | ) |                                   |   | (1,927,081 | )    |  |   | 1,683,848  |   |  |   | (3,294,352  | )
|Income (loss) before taxes                                                                                                                              |  |                                     | (14,245,988 | ) |                                   |   | (8,292,683 | )    |  |   | 1,751,652  |   |  |   | (33,134,533 | )
|                                                                                                                                                        |  |                                     |             |  
|Income taxes                                                                                                                                            |  |                                     |            |   |                                   |   |           |      |  |   | (3,000     | ) |  |   |            |  

(Continued)



6



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Continued)



|                                                          |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|--------------------------------------------------------- |  | ----------------------------------- | ----------- | - | --------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ----------- | -
|                                                          |  | For the Three Months EndedMarch 31, |             |   | For the Six Months
EndedMarch 31, |  
|                                                          |  | 2009                                |             |   | 2008                              |   |            | 2009 |  |   | 2008       |  
|Net (loss) income                                         |  | $                                   | (14,245,988 | ) |                                   | $ | (8,292,683 | )    |  |   | 1,748,652  |   |  |   | (33,134,533 | )
|Preferred stock dividend                                  |  |                                     | (699,759    | ) |                                   |   | (226,499   | )    |  |   | (1,399,518 | ) |  |   | (226,499    | )
|(Loss) Income attributable to common shareholders         |  |                                     | (14,945,747 | ) |                                   |   | (8,519,182 | )    |  |   | 349,134    |   |  |   | (33,361,032 | )
|                                                          |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|Weighted average shares outstanding, basic and diluted    |  |                                     | 58,048,208  |   |                                   |   | 43,681,670 |      |  |   | 58,002,784 |   |  |   | 42,661,240  |  
|                                                          |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|Per share amounts, basic and diluted:                     |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  
|Continuing operations                                     |  |                                     | (0.25       | ) |                                   |   | (0.15      | )    |  |   | 0.00       |   |  |   | (0.70       | )
|Discontinued operations                                   |  |                                     | 0.00        |   |                                   |   | (0.05      | )    |  |   | 0.03       |   |  |   | (0.08       | )
|Loss attributable to common stockholders per common share |  | $                                   | (0.26       | ) |                                   | $ | (0.20      | )    |  | $ | 0.01       |   |  | $ | (0.78       | )
|                                                          |  |                                     |             |   |                                   |   |            |      |  |   |            |   |  |   |             |  

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



7



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT

(Unaudited)



|                                                                                |  |              |  |                           |        |               |   |                     |  |   |          |   |  |   |              |   |  |   |              |  
|------------------------------------------------------------------------------- |  | ------------ |  | ------------------------- | ------ | ------------- | - | ------------------- |  | - | -------- | - |  | - | ------------ | - |  | - | ------------ | -
|                                                                                |  | Common Stock |  | Additional Paid InCapital |        | TreasuryStock |   |                     |  |   |          |   | 
|                                                                                |  | Shares       |  | Amount                    |        |               |   | Accumulated Deficit |  |   | Total    |  
|Balances, October 1, 2008                                                       |  | 54,103,894   |  | $                         | 54,104 |               | $ | 200,944,102         |  | $ | (170,057 | ) |  | $ | (301,146,053 | ) |  | $ | (100,317,904 | )
|Share-based compensation                                                        |  |             |  |                           |       |               |   | 921,480             |  |   |         |   |  |   |             |   |  |   | 921,480      |  
|Common stock issued upon the conversion of debentures and related interest      |  | 3,353,800    |  |                           | 3,354  |               |   | 1,672,970           |  |   |         |   |  |   |             |   |  |   | 1,676,324    |  
|Common stock issued upon the conversion of preferred stock                      |  | 590,514      |  |                           | 590    |               |   | 79,334              |  |   |         |   |  |   |             |   |  |   | 79,924       |  
|Biovest common stock issued for payment of interest on outstanding debt         |  |             |  |                           |       |               |   | 242,063             |  |   |         |   |  |   |             |   |  |   | 242,063      |  
|Common stock of Biovest issued for extension of debt                            |  |             |  |                           |       |               |   | 32,000              |  |   |         |   |  |   |             |   |  |   | 32,000       |  
|Biovest common stock warrants issued for modification of debt                   |  |             |  |                           |       |               |   | 62,325              |  |   |         |   |  |   |             |   |  |   | 62,325       |  
|Reclassification of financial instruments from derivative liabilities to equity |  |             |  |                           |       |               |   | 350,829             |  |   |         |   |  |   |             |   |  |   | 350,829      |  
|Accretion of preferred stock liability                                          |  |             |  |                           |       |               |   |                    |  |   |         |   |  |   | (1,399,518   | ) |  |   | (1,399,518   | )
|Net income for the year                                                         |  |             |  |                           |       |               |   |                    |  |   |         |   |  |   | 1,748,652    |   |  |   | 1,748,652    |  
|                                                                                |  |              |  |                           |        |               |   |                     |  |   |          |   |  |   |              |   |  |   |              |  
|Balances, March 31, 2009                                                        |  | 58,048,208   |  | $                         | 58,048 |               | $ | 204,305,103         |  | $ | (170,057 | ) |  | $ | (300,796,919 | ) |  | $ | (96,603,825  | )
|                                                                                |  |              |  |                           |        |               |   |                     |  |   |          |   |  |   |              |   |  |   |              |  

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



8



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                               |  |                                    |            |   |      |   |             |  
|------------------------------------------------------------------------------ |  | ---------------------------------- | ---------- | - | ---- | - | ----------- | -
|                                                                               |  | For the Six Months EndingMarch 31, |           
|                                                                               |  | 2009                               |            |   | 2008 |  
|Cash flows from operating activities:                                          |  |                                    |            |   |      |   |             |  
|Net income (loss)                                                              |  | $                                  | 1,748,652  |   |      | $ | (33,134,533 | )
|Adjustments to reconcile net loss to net cash flows from operating activities: |  |                                    |            |   |      |   |             |  
|Loss on sale and disposal of assets                                            |  |                                    | 335,000    |   |      |   | 4,238       |  
|Loss on financing transaction                                                  |  |                                    |           |   |      |   | 1,829,150   |  
|Change in fair market value adjustment of convertible debentures               |  |                                    | (5,490,389 | ) |      |   | 2,029,728   |  
|Depreciation                                                                   |  |                                    | 182,499    |   |      |   | 372,709     |  
|Amortization                                                                   |  |                                    | 145,472    |   |      |   | 552,291     |  
|Share-based compensation                                                       |  |                                    | 921,480    |   |      |   | 2,585,412   |  
|Accretion of capitalized finance costs                                         |  |                                    | 806,876    |   |      |   | 8,299,063   |  
|Accretion of debt discounts                                                    |  |                                    | 2,797,008  |   |      |   | 4,010,030   |  
|Accretion of royalty liability                                                 |  |                                    | 271,486    |   |      |   | 272,914     |  
|Derivative gain                                                                |  |                                    | (8,591,678 | ) |      |   | (1,057,062  | )
|Impairment of intangible assets                                                |  |                                    | 1,519,367  |   |      |   |            |  
|Issuance of common stock warrants for finance costs                            |  |                                    | 32,000     |   |      |   |            |  
|Issuance of common stock for services                                          |  |                                    |           |   |      |   | 840,690     |  
|Non-controlling interest in non-cash earnings from variable interest entities  |  |                                    | (196,054   | ) |      |   | (230,306    | )
|Increase (decrease) in cash resulting from changes in:                         |  |                                    |            |   |      |   |             |  
|Accounts receivable                                                            |  |                                    | 846,853    |   |      |   | 2,654,540   |  
|Inventories                                                                    |  |                                    | 638,468    |   |      |   | 1,032,889   |  
|Unbilled receivables                                                           |  |                                    | 88,212     |   |      |   | (579,863    | )
|Prepaid expenses and other current assets                                      |  |                                    | 115,937    |   |      |   | (126,604    | )
|Other assets                                                                   |  |                                    | 7,684      |   |      |   | 92,423      |  
|Assets of discontinued operations                                              |  |                                    | (664,144   | ) |      |   | (1,585,857  | )
|Accounts payable                                                               |  |                                    | 1,223,116  |   |      |   | (2,495,626  | )
|Accrued expenses                                                               |  |                                    | 4,282,306  |   |      |   | (28,440     | )
|Unearned revenues                                                              |  |                                    | (206,234   | ) |      |   | 112,524     |  
|Customer deposits                                                              |  |                                    | (16,282    | ) |      |   | (593,437    | )
|Liabilities of discontinued operations                                         |  |                                    | (1,779,637 | ) |      |   | (941,888    | )
|                                                                               |  |                                    |            |   |      |   |             |  
|Net cash flows from operating activities                                       |  |                                    | (982,002   | ) |      |   | (16,085,015 | )
|                                                                               |  |                                    |            |   |      |   |             |  
|Cash flows from investing activities:                                          |  |                                    |            |   |      |   |             |  
|Proceeds from sale of assets                                                   |  |                                    |           |   |      |   | 17,713      |  
|Release of restricted cash, net                                                |  |                                    |           |   |      |   | 1,630,498   |  
|Acquisition of furniture, equipment, and leasehold improvements                |  |                                    |           |   |      |   | (80,178     | )
|Cash paid for acquisition of product rights and other intangibles              |  |                                    |           |   |      |   | (200,000    | )
|                                                                               |  |                                    |            |   |      |   |             |  
|Net cash flows from investing activities                                       |  | $                                  |           |   |      | $ | 1,368,033   |  
|                                                                               |  |                                    |            |   |      |   |             |  

(Continued)



9



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Continued)



|                                                                                       |  |                                    |           |   |      |   |            |  
|-------------------------------------------------------------------------------------- |  | ---------------------------------- | --------- | - | ---- | - | ---------- | -
|                                                                                       |  | For the Six Months EndingMarch 31, |          
|                                                                                       |  | 2009                               |           |   | 2008 |  
|Cash flows from financing activities:                                                  |  |                                    |           |   |      |   |            |  
|Proceeds from sale of convertible preferred stock                                      |  | $                                  |          |   |      | $ | 8,729,000  |  
|Payments on notes payable and long-term debt                                           |  |                                    | (50,000   | ) |      |   | (4,234,222 | )
|Proceeds from the exercise of stock warrants                                           |  |                                    |          |   |      |   | 4,641,336  |  
|Payment of deferred financing costs                                                    |  |                                    | (64,613   | ) |      |   | (959,231   | )
|Proceeds from notes payable                                                            |  |                                    |          |   |      |   | 8,606,851  |  
|Proceeds from notes payable, related party                                             |  |                                    | 1,000,000 |   |      |   | 300,000    |  
|Payments on line of credit, related party                                              |  |                                    |          |   |      |   | (1,705,000 | )
|Payments made to related party, net                                                    |  |                                    | (16,054   | ) |      |   | (168,290   | )
|Payments of royalty liability                                                          |  |                                    |          |   |      |   | (500,000   | )
|Proceeds from long-term debt                                                           |  |                                    |          |   |      |   | 500,000    |  
|Proceeds from line of credit, net                                                      |  |                                    |          |   |      |   | (577,660   | )
|                                                                                       |  |                                    |           |   |      |   |            |  
|Net cash flows from financing activities                                               |  |                                    | 869,333   |   |      |   | 14,632,784 |  
|                                                                                       |  |                                    |           |   |      |   |            |  
|Net change in cash and cash equivalents                                                |  |                                    | (112,669  | ) |      |   | (84,198    | )
|                                                                                       |  |                                    |           |   |      |   |            |  
|Cash and cash equivalents at beginning of period                                       |  |                                    | 1,139,330 |   |      |   | 1,623,140  |  
|                                                                                       |  |                                    |           |   |      |   |            |  
|Cash and cash equivalents at end of period                                             |  |                                    | 1,026,661 |   |      | $ | 1,538,942  |  
|                                                                                       |  |                                    |           |   |      |   |            |  
|Supplemental cash flow information:                                                    |  |                                    |           |   |      |   |            |  
|Cash paid for:                                                                         |  |                                    |           |   |      |   |            |  
|Interest                                                                               |  |                                    | 16,667    |   |      |   | 2,763,948  |  
|Income taxes                                                                           |  |                                    | 3,000     |   |      |   |           |  
|                                                                                       |  |                                   
|Supplemental disclosure of non-cash financing activity:                                |  |                                    |           |   |      |   |            |  
|Conversions of convertible debentures and related interest to equity                   |  |                                    | 1,676,324 |   |      |   | 5,570,172  |  
|Common stock issued upon the conversion of preferred stock                             |  |                                    | 79,334    |   |      |   |           |  
|Biovest common stock issued for payment of interest on outstanding debt                |  |                                    | 242,063   |   |      |   |           |  
|Biovest common stock warrants issued for modification of debt                          |  |                                    | 62,325    |   |      |   |           |  
|Reclassification of financial instruments from derivative liabilities to equity        |  |                                    | 350,829   |   |      |   |           |  
|Reclassification of capitalized finance costs to equity upon conversions of debentures |  |                                    |          |   |      |   | 353,827    |  
|Common stock warrants issued for capitalized finance costs                             |  |                                    |          |   |      |   | 7,636,792  |  
|Conversion of minimum borrowing note                                                   |  |                                    |          |   |      |   | 320,400    |  
|Common stock issued for debt extension                                                 |  | $                                  |          |   |      | $ | 440,000    |  

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



10



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008

1. Description of company business:

Headquartered in Tampa, Florida, Accentia Biopharmaceuticals, Inc. (Other OTC: ABPIQ) is a biotechnology company that is developing
Revimmune as a comprehensive system of care for the treatment of multiple sclerosis (MS) and other human autoimmune diseases and, through its, majority-owned subsidiary, Biovest International, Inc., BiovaxID® as a therapeutic
cancer vaccine for treatment of follicular non-Hodgkins lymphoma (FL) and mantle cell lymphoma (MCL). Additionally, the Company, through its wholly-owned subsidiary, Analytica International, Inc., conducts a health
economics research and consulting business which the Company markets to the pharmaceutical and biotechnology industries, using its operating cash flow to support its corporate administration and product development activities.

Revimmune is being developed as a comprehensive system of care for the treatment of MS and other human autoimmune diseases. In the treatment of MS,
Revimmune seeks to restore neurological and physical functions that have been lost due to disease progression as well as to delay further disease progression. Revimmunes primary mode of action is to eliminate mature white blood cells
(lymphocytes) that circulate throughout the body, including the white blood cells that are believed to cause the progressive disability characteristic of autoimmune disease. At the same time, Revimmune seeks to selectively spare immature immune stem
cells in the bone marrow which can repopulate the immune system without the autoimmunity. As part of Revimmune therapy, an immune rebooting process takes place as the marrow stem cells reform the immune system with new cells lacking
autoimmunity. The Company is currently planning a Phase 3 clinical trial of Revimmune for the treatment of MS. Additionally, the Company anticipates potential future studies in other diseases with an underlying autoimmune component.

Additionally, through a collaboration with the National Cancer Institute (NCI), the Companys majority-owned
subsidiary, Biovest International, Inc. (OTCQB: BVTI) (Biovest) has developed a patient-specific cancer vaccine,
BiovaxID®, which has demonstrated statistically significant Phase 3 clinical benefit by prolonging disease-free
survival in follicular non-Hodgkins lymphoma patients treated with BiovaxID. Based on Phase 2 and Phase 3 clinical trial results, Biovest plans discussions with the U.S. Food and Drug Administration (the FDA) and international
regulatory agencies regarding marketing approval.

Additionally, through the Companys wholly-owned subsidiary, Analytica International,
Inc. (Analytica), based in New York City, the Company conducts a global research and strategy consulting business that provides professional services to the pharmaceutical and biotechnology industries. Since 1997, Analytica has
expertly directed research studies and projects, including traditional health economic modeling projects, database studies, structured reviews, health technology assessments, reimbursement analyses, and value dossiers.

2. Chapter 11 bankruptcy:

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



11



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



2. Chapter 11 bankruptcy (continued):



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

3. Significant accounting policies:

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

Discontinued operations

Upon our
bankruptcy filing, we discontinued the operations of our TEAMM subsidiary. The operating results have been segregated as income from discontinued operations in the accompanying condensed consolidated statement of operations. The asset and
liabilities are segregated in the accompanying condensed consolidated balance sheet.

Principles of consolidation

The Company consolidates all entities controlled by ownership of a majority 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 (TEAMM or Accentia Pharmaceuticals), AccentRx, Inc. (AccentRx), and Accentia Specialty Pharmacy (ASP); its majority owned subsidiary, Biovest (and
its consolidated entities), and Revimmune, LLC, 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.

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

The Company does not currently recognize a minority interest in its 75% owned subsidiary pursuant to Accounting Research Bulletin No. 51,
Consolidated Financial Statements since the losses applicable to the minority interest in the subsidiary exceed the minority interest in the equity capital of the subsidiary. Therefore, such excess losses and any further losses applicable to
the minority interest shall be charged against the majority interest, as there is no obligation of the minority interest to fund these losses. However, if future minority equity or earnings do materialize, the majority interest will be credited to
the extent of such losses previously absorbed. The Company currently records any equity raised through Biovest as Absorption of Prior Losses Against Minority Interest in the Other Income section on the Consolidated Statement of Operations.



12



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



3. Significant accounting policies (continued):



Voluntary Petition for Bankruptcy:

On November 10, 2008, the Company, and its subsidiaries, Analytica International, Inc., TEAMM Pharmaceuticals, Inc., AccentRx, and Accentia Specialty
Pharmaceuticals, Inc. (collectively, the Debtors) filed voluntary petitions for relief under Chapter 11. The Debtors will continue to operate their business as debtors-in-possession under the jurisdiction of the
Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

American
Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code (SOP 90-7), which is applicable to companies in Chapter 11, generally
does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly
associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must
be reported separately as reorganization items in the statements of operations beginning in the quarter ending March 31, 2009. The balance sheet must distinguish prepetition liabilities subject to compromise from both those prepetition
liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts.
In addition, cash provided by reorganization items must be disclosed separately in the statement of cash flows. The Company adopted SOP 90-7 effective on November 10, 2008 and will segregate those items as outlined above for all reporting
periods subsequent to such date.

Contractual Interest Expense:

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

Financial instruments:

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

The Company carries cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and lines of credit at historical costs; their
respective estimated fair values approximate carrying values due to their current nature. The Company also carries notes payable and certain convertible debt, included in long-term debt, at historical cost less discounts attributable to the
concurrent issuance of detachable warrants, beneficial conversion features and bifurcated embedded derivatives. However, fair values of these debt instruments are estimated for disclosure purposes based upon the present value of the estimated cash
flows at market interest rates applicable to similar instruments. The Company carries certain convertible debentures at fair value pursuant to Financial Accounting Standard No.155 Accounting for Certain Hybrid Financial Instruments (FAS 155).



13



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



3. Significant accounting policies (continued):



The Company evaluates all significant arrangements and relationships for indications of variable
interest entities pursuant to Financial Accounting Standards Board Interpretation 46R, Consolidation of Variable Interest Entities. During, April 2006 and December 2006, the Company and Biovest entered into financing arrangements that
involved entities that met the definition of variable interest entities. As a result, the Company and Biovest were required to consolidate these entities and reflect the non-controlling interest in the consolidated financial statements. The
consolidated financial statements include the variable interest entities as follows: Biovest Investment, LLC, Telesis CDE Two LLC, AutovaxID Investment LLC, St. Louis New Market Tax Credit Fund II LLC and Revimmune, LLC.

Recent accounting pronouncements:

In
September 2006, the FASB issued FASB Statement No. 157 (FAS 157). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is a relevant measurement
attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current valuation and accounting practices. For fiscal years beginning after
November 15, 2007, we 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 believes this Statement will have no material impact upon our financial statements once adopted.

In February
2007, the Financial Accounting Standards Board (FASB) issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including and amendment of FASB Statement No. 115 (FAS
159). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159, is effective for fiscal years beginning after
November 15, 2007. We do not expect SFAS 159 to have a material impact on our consolidated financial statements and elected not to adopt the fair value option for any recognized financial assets and liabilities as permitted by SFAS 159.

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

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



14



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



3. Significant accounting policies (continued):



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.

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

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

In June 2008, the FASB
issued new guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entitys own stock. The Company adopted this new guidance effective October 1, 2009. Certain of the Companys
outstanding warrants and convertible debt contain features which fall under the scope of this guidance resulting in a decrease of $2.2 million and $0.8 million to the October 1, 2009 balances of additional paid-in capital and accumulated deficit
respectively.

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



15



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



4. Liquidity and managements plans:

During the six months ended March 31, 2009, the Company had net income of $1.7 million. On March 31, 2009, the Company had an accumulated
deficit of approximately $301 million and a working capital deficit of approximately $94.9 million which includes liabilities subject to compromise through the Companys Chapter 11 proceedings. The Company filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code on November 10, 2008. The Company will continue to operate as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Companys independent registered public accounting firms report included a going concern uncertainty on the financial statements for the year ended
September 30, 2008, citing significant losses and working capital deficits at that date, which raised substantial doubt about the Companys ability to continue as a going concern.

Issuance of common shares:

In October
2008, the Company issued 3,944,314 shares of its common stock in satisfaction of principal, interest and fees due on its outstanding debt.



16



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



4. Liquidity and managements plans (continued):



Termination of Leases:

On December 8, 2008, the Bankruptcy Court entered an Order confirming the rejection of the Companys lease with Were Associates Company
and sublease with Federated Payment Systems, LLC, for premises located at Two Huntington Quadrangle, Third Floor, North Wing, Melville, New York and the Company no longer has any leasehold interest in these premises.

On March 20, 2009, the Bankruptcy Court entered an Order confirming the rejection of the New York office lease located at 450 Park Avenue South, New
York, NY 10016, which had been occupied by the Companys Analytica subsidiary, and Analytica no longer occupy these premises.

Debtor-in-Possession Financing:

On
December 22, 2008, Biovest completed the closing of a debtor-in-possession financing transaction (the DIP Transaction) with Corps Real, LLC, a Illinois limited liability company, the principal owners of which are a director of, or
affiliated with directors of Biovest (the DIP Lender). Pursuant to the transaction, the DIP Lender provided to Biovest a secured line of credit in an amount of up to $3.0 million in accordance with an order entered by the Bankruptcy
Court. As of March 31, 2009, the DIP Lender has advanced $1.0 million to
Biovest1.

Additional expected financing activity:

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

5. Inventories:

Inventories (of continuing operations) consist of the following:



|                      |  |                           |         |                    |   |        
|--------------------- |  | ------------------------- | ------- | ------------------ | - | -------
|                      |  | March 31, 2009(Unaudited) |         | September 
30,2008
|Finished goods, other |  | $                         | 81,706  |                    | $ | 172,142
|Work-in-process       |  |                           | 77,624  |                    |   | 67,297 
|Raw materials         |  |                           | 414,940 |                    |   | 369,845
|                      |  |                           |         |                    |   |        
|                      |  | $                         | 574,270 |                    | $ | 609,284
|                      |  |                           |         |                    |   |        



|1 | Subsequent to the period of this report and as of August 16, 2010, the DIP Lender has advanced a total of $1.64 million to Biovest pursuant to the terms of the DIP
Transaction.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



6. Intangible assets:

Intangible assets consist of the following:



|                                   |  |                           |            |   |                   |   |            |                                   |  |           
|---------------------------------- |  | ------------------------- | ---------- | - | ----------------- | - | ---------- | --------------------------------- |  | ----------
|                                   |  | March 31, 2009(Unaudited) |            |   | September 30,2008 |   |            | WeightedAverageAmortizationPeriod
|Indefinite-life intangible assets: |  |                           |            |   |                   |   |            |                                   |  |           
|Trademarks                         |  | $                         | 1,176,433  |   |                   | $ | 1,176,433  |                                   |  |           
|Purchased customer relationships   |  |                           |           |   |                   |   | 225,137    |                                   |  |           
|                                   |  |                           |            |   |                   |   |            |                                   |  |           
|                                   |  |                           | 1,176,433  |   |                   |   | 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                     |  |                           | 1,628,321  |   |                   |   | 3,706,813  |                                   |  | 18.4 years
|Software                           |  |                           | 498,416    |   |                   |   | 498,416    |                                   |  | 3.5 years 
|Trademarks                         |  |                           | 109,527    |   |                   |   | 109,527    |                                   |  | 7.5 years 
|                                   |  |                           |            |   |                   |   |            |                                   |  |           
|                                   |  |                           | 5,533,949  |   |                   |   | 7,612,441  |                                   |  |           
|Less accumulated amortization      |  |                           | (3,989,270 | ) |                   |   | (4,628,057 | )                                 |  |           
|                                   |  |                           |            |   |                   |   |            |                                   |  |           
|                                   |  |                           | 1,544,679  |   |                   |   | 2,984,384  |                                   |  |           
|                                   |  |                           |            |   |                   |   |            |                                   |  |           
|Total intangible assets            |  | $                         | 2,721,112  |   |                   | $ | 4,385,954  |                                   |  |           
|                                   |  |                           |            |   |                   |   |            |                                   |  |           

7. Lines of credit:

As a result of the Companys Chapter 11 filings on November 10, 2008, the line of credit listed in the table below as of September 30, 2008
became prepetition indebtedness under the Debtors plan of reorganization. Accordingly, these obligations have been classified as Liabilities subject to compromise in the Companys condensed consolidated balance sheet as of
March 31, 2009. See Note 14 for further details.

Lines of credit consist of the following:



|                                                                                                                                                         |  |                           |   |                    |   |          
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | - | ------------------ | - | ---------
|                                                                                                                                                         |  | March 31, 2009(Unaudited) |   | September 
30,2008
|Revolving credit agreement, interest at prime rate (5.0% at March 31, 2009); secured by Companys accounts receivable
and guarantee of major stockholder |  | $                         |  |                    | $ | 4,000,000
|                                                                                                                                                         |  |                           |   |                    |   |          
|                                                                                                                                                         |  | $                         |  |                    | $ | 4,000,000
|                                                                                                                                                         |  |                           |   |                    |   |          



18



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



8. Notes payable:

As a result of the Companys Chapter 11 filings on November 10, 2008, the notes payable listed in the table below as of September 30, 2008
became prepetition indebtedness under the Debtors plan of reorganization. Accordingly, these obligations have been classified as Liabilities subject to compromise in the Companys condensed consolidated balance sheet as of
March 31, 2009. See Note 14 for further details.

Notes payable consist of the following at their recorded value including discounts and
accrued interest and fees:



|                                                                                                                      |  |               |   |                    |   |           
|--------------------------------------------------------------------------------------------------------------------- |  | ------------- | - | ------------------ | - | ----------
|                                                                                                                      |  | March 31,2009 |   | September 
30,2008
|Pulaski Bank and Trust Company of St. Louis, MO, $1,750,000 face value, prime rate, note payable                      |  | $             |  |                    | $ | 1,082,000 
|Southwest Bank Creve Coeur Financial Center of St. Louis, MO, $200,000 face value, prime rate plus 1.0%, note
payable |  |               |  |                    |   | 200,129   
|Valens Offshore SPV II, Corp., $3,600,000 face value, 30% note payable                                                |  |               |  |                    |   | 5,256,176 
|Valens U.S. SPV I, LLC, $4,900,000 face value, 30% note payable                                                       |  |               |  |                    |   | 7,154,237 
|Note Payable, $300,000 face value, plus $300,000 in shares of the Companys common stock due upon maturity*           |  |               |  |                    |   | 643,167   
|Other                                                                                                                 |  |               |  |                    |   | 21,865    
|                                                                                                                      |  |               |   |                    |   |           
|                                                                                                                      |  | $             |  |                    | $ | 14,357,574



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

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

On October 15, 2008, the note holder elected to exchange this note for a
secured debenture in the gross amount of $0.3 million.

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

Due to the Biovests Chapter 11 filing on November 10, 2008, this note became a pre-petition liability of Biovest and has been classified
within Liabilities subject to compromise in Biovests condensed consolidated balance sheet as of March 31, 2009.



19



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



9. Long-term debt:

As a result of the Companys Chapter 11 filings on November 10, 2008, the long-term debt listed in the table below as of September 30, 2008
became prepetition indebtedness under the Debtors plan of reorganization. Accordingly, these obligations have been classified as Liabilities subject to compromise in the Companys condensed consolidated balance sheet as of
March 31, 2009. See Note 14 for further details.

Long-term debt consists of the following:



|                                                                                                                                                                                                                                                                                                                                               |  |               |   |                   |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | - | ----------------- | - | ----------- | -
|                                                                                                                                                                                                                                                                                                                                               |  | March 31,2009 |   | September 30,2008 |  
|Convertible debentures  September 2006 (hybrid financial instrument), at fair value, face value of $6.7 million (2008), and
$12.9 million (2007), interest at 8% payable quarterly, principal payable in 37 monthly installments beginning October 2007 through September 29, 2010. Convertible to common stock from $1.25 to $2.60 per share |  | $             |  |                   | $ | 7,027,037   |  
|Convertible debentures  February 2007, face value of $17.5 million (2008) and $24.6 million (2007), interest at 8%
payable quarterly, matures February 2011                                                                                                                                                                                   |  |               |  |                   |   | 13,828,904  |  
|Secured convertible debentures  June 2008, face value of $8.9 million (June 30, 2008), interest at 8% payable quarterly, no
interest for first twelve months, matures June 2011                                                                                                                                                               |  |               |  |                   |   | 2,782,540   |  
|Convertible amortizing term note, due to Laurus, no interest payable monthly, due December 2008                                                                                                                                                                                                                                                |  |               |  |                   |   | 8,800,000   |  
|Convertible notes payable, Biovest 2000 bridge financing, interest at 10%, due in 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 $1.25 per share, which were exercisable through September 2007                       |  |               |  |                   |   | 35,025      |  
|Convertible amortizing term note (owed by Biovest), due to Laurus Master Fund, Ltd., interest payable monthly at prime rate plus
2%, (9.75% at September 30, 2007), due March 31, 2009                                                                                                                                                         |  |               |  |                   |   | 8,714,956   |  
|Valens Offshore SPV II, Corp (owed by Biovest), $255,000 face value, prime rate plus 2% with 9.0% minimum, (9.00% at
June 30, 2008) note payable, due March 31, 2009                                                                                                                                                                           |  |               |  |                   |   | 378,373     |  
|Valens U.S. SPV I, LLC (owed by Biovest), $245,000 face value, prime rate plus 2% with 9.0% minimum, (9.00% at June 30,
2008) note payable, due March 31, 2009                                                                                                                                                                                 |  |               |  |                   |   | 363,535     |  
|Valens 15% Convertible                                                                                                                                                                                                                                                                                                                         |  |               |  |                   |   | 64,737      |  
|Other                                                                                                                                                                                                                                                                                                                                          |  |               |  |                   |   | 87,439      |  
|Long term accrued interest                                                                                                                                                                                                                                                                                                                     |  |               |   |                   |   | 41,377      |  
|                                                                                                                                                                                                                                                                                                                                               |  |               |   |                   |   |             |  
|                                                                                                                                                                                                                                                                                                                                               |  |               |  |                   |   | 42,123,923  |  
|Less current maturities                                                                                                                                                                                                                                                                                                                        |  |               |  |                   |   | (27,125,593 | )
|                                                                                                                                                                                                                                                                                                                                               |  |               |   |                   |   |             |  
|                                                                                                                                                                                                                                                                                                                                               |  | $             |  |                   | $ | 14,998,330  |  
|                                                                                                                                                                                                                                                                                                                                               |  |               |   |                   |   |             |  

10. Royalty liability

On April 17, 2007, Biovest executed an amendment agreement with its senior lender, Laurus, to defer payments of principal on its $7.799 million loan.
As consideration for the forbearance 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 Biovests royalty payments to Laurus are required to aggregate to a minimum of $8.0 million, and are required to be paid quarterly with $0.5 million of the minimum royalty having been paid on December 31, 2007 and the
balance (if any), less actual royalties paid, being due on May 31, 2012.

Biovest recorded the royalty liability based on the present
value of the minimum payments (discounted at an annual rate of 11%) due under the Amendment. On November 10, 2008, Biovest filed a voluntary petition for relief under Chapter 11 (Note 2). While Biovest remains a debtor in possession under the
Bankruptcy Code, it is not anticipated that payment will be made on the royalty obligation. Managements estimate of the balance due on the royalty obligation has been reclassified to Liabilities subject to compromise on
Biovests condensed consolidated balance sheet as March 31, 2009.



20



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



11. Derivative Liabilities

As a result of the Companys Chapter 11 filings on November 10, 2008, derivative liabilities listed in the table below as of September 30,
2008 became prepetition indebtedness under the Debtors plan of reorganization. Accordingly, these obligations have been classified as Liabilities subject to compromise in the Companys condensed consolidated balance sheet as
of March 31, 2009. See Note 14 for further details.

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



|                                            |  |               |   |                    |   |           
|------------------------------------------- |  | ------------- | - | ------------------ | - | ----------
|                                            |  | March 31,2009 |   | September 
30,2008
|Embedded derivative instruments, bifurcated |  | $             |  |                    | $ | 13,775,305
|Freestanding derivatives:                   |  |               |   |                    |   |           
|Warrants issued with convertible debt       |  |               |  |                    |   | 2,789,441 
|Warrants issued with note payable           |  |               |  |                    |   | 3,114,000 
|Warrants issued with preferred stock        |  |               |  |                    |   | 528,463   
|Warrants issued with other debt             |  |               |  |                    |   | 1,461,834 
|Default and investment put options, Biovest |  |               |  |                    |   | 176,505   
|Investment put option, Accentia             |  |               |  |                    |   | 2,933,123 
|                                            |  |               |   |                    |   |           
|                                            |  | $             |  |                    | $ | 24,778,671
|                                            |  |               |   |                    |   |           

12. Related party transactions:

Notes
payable2, related party consists of the following at the
recorded value including accrued interest:



|                                            |  |               |           |                   |   |        
|------------------------------------------- |  | ------------- | --------- | ----------------- | - | -------
|                                            |  | March 31,2009 |           | September 30,2008
|Secured convertible debenture  15%         |  | $             |          |                   | $ | 122,627
|Unsecured convertible promissory note  10% |  |               |          |                   |   | 51,512 
|Unsecured promissory note  prime plus 2%   |  |               |          |                   |   | 49,776 
|Debtor-in-possession note  16%             |  |               | 1,022,486 |                   |   |       
|                                            |  |               |           |                   |   |        
|                                            |  | $             | 1,022,486 |                   | $ | 223,915
|                                            |  |               |           |                   |   |        

Secured Convertible Debenture:

On September 22, 2008, Biovest entered into definitive agreements with three investors, all of whom are affiliates, related to a private placement of
its 15% Secured Convertible Debentures (the Debentures). The definitive documents permit Biovest to place up to $5.0 million in principal amount of its Debentures (the Private Placement). Biovest sold $1.150 million in
principal amount of its Debentures (the Initial Tranche) and sold an additional $0.3 million in principal amount of its Debentures to another individual investor effective as of October 15, 2008 (the Second Tranche).

On September 26, 2008, Biovest exchanged the September 11, 2007 and October 12, 2007 unsecured promissory notes outstanding to
one of its directors in the gross amount of $0.5 million for Debentures in the gross amount of $0.5 million. Biovest issued to these two directors warrants to purchase a total of 625,000 shares of Biovest common stock at an exercise price of $0.40
per share, which vested immediately and expire in five years. These warrants were issued in consideration of the agreement of these purchasers to extend the maturity date of their promissory notes which had previously reached maturity and then
exchanged into the terms of the Debentures discussed above.



|2 | As a result of the Companys and its subsidiaries Chapter 11 filings all actions to enforce or otherwise effect the Companys and/or its
subsidiaries obligations and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy law.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



12. Related party transactions (continued):



On October 29, 2008, and effective as of October 15, 2008, Biovest exchanged the
September 9, 2007 unsecured promissory note to a third-party investor , which had been amended and restated as of October 15, 2008, for Debentures in the gross amount of $0.3 million. Biovest also agreed to issue to the purchaser in the
Second Tranche warrants to purchase a total of 375,000 shares of Biovests common stock at an exercise price of $0.40 per share, vested immediately with a five-year term. These warrants were issued in consideration of the agreement of this
purchaser to extend the maturity date of his existing promissory note which had previously reached maturity.

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

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

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

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

As a result of Biovest and
its subsidiaries Chapter 11 filings all actions to enforce or otherwise effect Biovest and/or its subsidiaries obligations and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy
law.



22



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



12. Related party transactions (continued):



Management concluded that the
September 26thmodifications added a substantive
conversion option to the pre-existing notes and thus applied debt extinguishment accounting to the transaction resulting in a $156,000 loss on extinguishment of debt recorded on Biovests consolidated statement of operations for the year ended
September 30, 2008. Furthermore, the newly issued secured convertible debentures met the definition of derivative financial instruments and required bifurcation under Financial Accounting Standard No. 133 Accounting for Derivative
Financial Instruments and Hedging Activities(SFAS 133). Proceeds from the debenture were allocated to debt and derivative liabilities based on the relative fair values of the debt and derivatives. The resulting discount on the
debt will be amortized to interest expense over the term of the debentures using the effective interest method. The entire balance due under these notes has been reclassified to Liabilities subject to compromise on the Companys
condensed consolidated balance sheet as of March 31, 2009 (Note 14).

Unsecured convertible promissory note:

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 $1.0 million, bearing interest at 10% and with a maturity date of the earlier to occur of one year from the date of issuance, or, at the election of the lender, upon closing of a financing transaction resulting in net proceeds
to Biovest of at least $15.0 million. 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 2.0 million 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 the earlier to occur of i) notice of a signed term sheet for a financing of specified magnitude or ii) maturity of the note as defined therein, to increase his loan by an amount of up to the full original loan amount ($1.0
million) upon the same terms as contained in the original note, including issuance of additional warrants with the same term, exercise price, and cashless exercise provisions. As a result of this transaction, the Conversion Price applicable to
certain other agreements of Biovest was adjusted to equal the conversion/warrant exercise price set forth in this transaction.

As a result of
Biovest and its subsidiaries Chapter 11 filings all actions to enforce or otherwise effect Biovest and/or its subsidiaries obligations and payments under any debt facility were automatically stayed pursuant to provisions of federal
bankruptcy law.

Under the Emerging Issues Task Force (EITF) No. 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF No. 00-27, Application of Issue 98-5 to Certain Convertible Instruments, Biovest is required to value the warrants and beneficial conversion
feature granted with this debt (BCF) separately from the note. EITF No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, provides guidance for distinguishing
between permanent equity, temporary equity and assets and liabilities. The warrants issued with the debt, as well as the option agreement with the lender, whereby the lender may elect to increase his loan by an additional $1.0 million meets the
requirements of EITF No. 00-19 and were accounted for as an equity instrument. As such, this option has not been accounted for as a derivative (which would be marked to market each reporting period) and in the event the option is exercised, no gain
or loss is recognized. The value assigned to the warrants ($0.25 million), the BCF ($0.36 million) and the option agreement ($0.39 million) was initially recorded as a discount to the face value of the note and an offsetting increase to additional
paid-in capital. The debt discount ($1.0 million aggregate) will be amortized to interest expense over the life of the note under the effective interest method. The entire balance due under these notes has been reclassified to Liabilities
subject to compromise on the Companys condensed consolidated balance sheet as of March 31, 2009 (Note 14).



23



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



12. Related party transactions (continued):



Unsecured promissory note:

On September 26, 2007, Biovest issued an unsecured promissory note to a shareholder of Accentia in the amount of $46,015. This loan bears interest at
prime plus 2.0% and is payable October 1, 2009. 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. Proceeds from this note were allocated to debt and
stockholders equity based on the relative fair values of the debt and the warrants. As a result of Biovest and its subsidiaries Chapter 11 filings all actions to enforce or otherwise effect Biovest and/or its subsidiaries
obligations and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy law. The entire balance due under these notes has been reclassified to Liabilities subject to compromise on the
Companys condensed consolidated balance sheet as of March 31, 2009 (Note 14).

Debtor-in-possession note:

On December 22, 2008, Biovest completed the closing of the DIP Transaction with the DIP Lender. Pursuant to the transaction, the
DIP Lender provided to Biovest a secured line of credit in an amount of up to $3.0 million in accordance with an order entered by the Bankruptcy Court (the Facility). As of March 31, 2009, the DIP Lender had advanced $1.0 million to
Biovest3.

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



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



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



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



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



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



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



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



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



|3 | Subsequent to the period of this report and as of July 31, 2010, the DIP Lender has advanced a total of $1.64 million to Biovest pursuant to the
terms of the DIP Transaction.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



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.

As a result of Biovest and its subsidiaries Chapter 11 filings all actions to enforce or otherwise effect Biovest and/or its
subsidiaries obligations and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy law.

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 three months ended December 31, 2007.

14. Liabilities subject to compromise:

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

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

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



25



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



14. Liabilities subject to compromise (continued):



Liabilities subject to compromise consist of the following:



|                                                                         |  |               |           
|------------------------------------------------------------------------ |  | ------------- | ----------
|                                                                         |  | March 31,2009
|Accounts payable and accrued expenses (1) (2) (3)                        |  | $             | 14,471,456
|Hybrid financial instrument                                              |  |               | 833,943   
|Convertible debentures                                                   |  |               | 19,595,284
|Laurus term note                                                         |  |               | 8,800,000 
|Valens 15% convertible note, Biovest                                     |  |               | 191,210   
|Secured promissory notes payable to Laurus and the Valens Funds, Biovest |  |               | 22,669,839
|Unsecured promissory notes payable to Pulaski Bank and Trust Company (1) |  |               | 1,001,397 
|Unsecured promissory note payable to Southwest Bank of St. Louis         |  |               | 206,257   
|Southwest Bank line of credit                                            |  |               | 4,000,000 
|Notes payable, related parties                                           |  |               | 769,089   
|Other notes payable                                                      |  |               | 432,984   
|Minimum royalty due to Laurus on net sales of AutovaxID instrumentation  |  |               | 5,414,727 
|Derivative liabilities                                                   |  |               | 15,970,992
|Dividend payable                                                         |  |               | 479,452   
|Other                                                                    |  |               | 1,096,727 
|                                                                         |  |               |           
|                                                                         |  | $             | 95,933,357



|(1) | The notes issued to Pulaski Bank and Trust Company of St. Louis, MO (Pulaski Bank) are guaranteed by individuals affiliated with Biovest or Accentia.
Biovest agreed to indemnify and hold harmless each guarantor should their guarantees be called by Pulaski Bank. In addition, in the event of default by Biovest resulting in a payment to the Lender by the guarantors, Biovest agreed to compensate each
affected guarantor by issuance of that number of shares of Biovests restricted common stock determined by dividing 700% of the amount guaranteed by $1.10. On December 29, 2008, Pulaski Bank called the guarantees resulting in an aggregate
payment of $1.0 million by the guarantors. As a result of their indemnification agreements, the guarantors are allowed an unsecured claim for the value of approximately 6.4 million shares of Biovest common stock having a fair value of $509,000
as of March 31, 2009. The $509,000 is included in accrued expenses.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In an effort to decrease operating expenses, Biovest through its Chapter 11 bankruptcy proceedings rejected its lease in Worcester, Massachusetts on December 8,
2008. Biovest recorded a provision of $644,000 to allow for damages resulting from the rejection of this unexpired lease, which are treated by the bankruptcy code as general unsecured claims and are limited to either 15 percent of the balance of the
rent reserved in the lease or the rent reserved for one year from the filing date or the date the premises were surrendered, whichever is earlier. The $644,000 is included in accrued expenses.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes accounts payable and accrued expenses of discontinued operations.
|--- | --------------------------------------------------------------------------



26



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



15. Stockholders equity:

Stock options and warrants

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

Stock options and warrants
issued, terminated/forfeited and outstanding as of March 31, 2009 are as follows:



|                             |  |            |   |  |                                 |     
|---------------------------- |  | ---------- | - |  | ------------------------------- | ----
|                             |  | Shares     |   |  | Average Exerciseprice per share
|Options:                     |  |            |   |  |                                 |     
|Outstanding, October 1, 2008 |  | 4,180,545  |   |  | $                               | 3.33
|Granted (1)                  |  | 4,687,000  |   |  |                                 | 0.18
|Terminated or forfeited      |  | (302,657   | ) |  |                                 | 2.72
|Exercised                    |  |           |   |  |                                 |     
|                             |  |            |   |  |                                 |     
|Outstanding March 31, 2009   |  | 8,564,888  |   |  | $                               | 1.61
|                             |  |            |   |  |                                 |     
|                             |  |           
|Warrants:                    |  |            |   |  |                                 |     
|Outstanding, October 1, 2008 |  | 23,175,933 |   |  | $                               | 2.33
|Granted                      |  |           |   |  |                                 |    
|Terminated or forfeited      |  | (1,895,133 | ) |  |                                 | 1.62
|Exercised                    |  |           |   |  |                                 |    
|                             |  |            |   |  |                                 |     
|Outstanding March 31, 2009   |  | 21,280,800 |   |  | $                               | 2.51
|                             |  |            |   |  |                                 |     



|(1) | The options are restricted for exercise until confirmation of the bankruptcy plan.
|--- | ----------------------------------------------------------------------------------

The weighted average grant date fair values of stock options granted as of March 31, 2009 (unaudited), was $0.18.

A summary of the status of the Companys nonvested stock options as of March 31, 2009, 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, 2008 |  | 1,758,985 |   |  |                                         |      |                |   |     
|Granted                         |  | 4,687,000 |   |  |                                         |      |                |   |     
|Vested                          |  | (757,513  | ) |  |                                         |      |                |   |     
|Forfeited                       |  | (202,649  | ) |  |                                         |      |                |   |     
|                                |  |           |   |  |                                         |      |                |   |     
|Nonvested at March 31, 2009     |  | 5,485,823 |   |  | $                                       | 0.31 |                | $ | 0.00
|                                |  |           |   |  |                                         |      |                |   |     



27



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



16. Segment information:

Domestic and foreign operations



|                  |  |                                   |             |   |                                   |   |           |       |  |   |             |   |  |                       |             |       |  |   |           |  |   |             |  
|----------------- |  | --------------------------------- | ----------- | - | --------------------------------- | - | --------- | ----- |  | - | ----------- | - |  | --------------------- | ----------- | ----- |  | - | --------- |  | - | ----------- | -
|                  |  | Three months ended March 31, 2009 |             |   | Three months ended March 31, 2008 |  
|                  |  | Domestic                          |             |   | International(Europe)             |   |           | Total |  |   | Domestic    |   |  | International(Europe) |             | Total | 
|Net sales         |  | $                                 | 2,154,163   |   |                                   | $ | 1,102,948 |       |  | $ | 3,257,111   |   |  | $                     | 2,769,813   |       |  | $ | 1,131,752 |  | $ | 3,901,565   |  
|Net (loss) income |  |                                   | (14,109,971 | ) |                                   |   | (136,017  | )     |  |   | (14,245,988 | ) |  |                       | (8,602,253  | )     |  |   | 309,570   |  |   | (8,292,683  | )
|Total Assets      |  |                                   | 9,416,876   |   |                                   |   | 2,823,544 |       |  |   | 12,240,420  |   |  |                       | 26,502,145  |       |  |   | 2,536,055 |  |   | 29,038,200  |  
|Goodwill          |  |                                   | 893,000     |   |                                   |   | 300,437   |       |  |   | 1,193,437   |   |  |                       | 893,000     |       |  |   | 300,437   |  |   | 1,193,437   |  
|                  |  |                                  
|                  |  | Six months ended March 31, 2009   |             |   | Six Months Ended March 31, 2008   |  
|                  |  | Domestic                          |             |   | International(Europe)             |   |           | Total |  |   | Domestic    |   |  | International(Europe) |             | Total | 
|Net sales         |  | $                                 | 3,865,467   |   |                                   | $ | 2,086,815 |       |  | $ | 5,952,282   |   |  | $                     | 5,210,483   |       |  | $ | 2,269,994 |  | $ | 7,480,477   |  
|Net income (loss) |  |                                   | 1,902,901   |   |                                   |   | (154,249  | )     |  |   | 1,748,652   |   |  |                       | (33,314,671 | )     |  |   | 180,138   |  |   | (33,134,533 | )
|Total Assets      |  |                                   | 9,416,876   |   |                                   |   | 2,823,544 |       |  |   | 12,240,420  |   |  |                       | 26,502,145  |       |  |   | 2,536,055 |  |   | 29,038,200  |  
|Goodwill          |  |                                   | 893,000     |   |                                   |   | 300,437   |       |  |   | 1,193,437   |   |  |                       | 893,000     |       |  |   | 300,437   |  |   | 1,193,437   |  

17. Commitments and
contingencies:

Legal proceedings:

Bankruptcy proceedings:

On
November 10, 2008, the Company and all of its subsidiaries filed a voluntary petition for reorganization under Chapter 11 in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division (the Bankruptcy
Court). During the pendency of the Chapter 11 proceedings, the Company will operate its business as a debtor-in-possession in accordance with the provisions of Chapter 11, and will be subject to the jurisdiction of the Bankruptcy Court.

Biovest litigation:

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



28



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



17. Commitments and contingencies (continued):



Analytica litigation:

On December 2, 2005, the Companys subsidiary, Analytica, commenced litigation in the Supreme Court of New York, New York County against a
former employee, alleging breach of covenants not to compete, breach of confidentiality agreements and misappropriation of proprietary information. . 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. Both Analytica and the former employee sought injunctive relief and monetary damages from one another. The
Company 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 the Companys motion and dismissed
defendants counterclaims against the Companys 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 the Company filed a motion seeking to dismiss virtually all claims in the Amended Counterclaim. The Company plans to pursue the Companys affirmative claims in this matter vigorously and has asserted all available defenses
against the counterclaims, which the Company believes are without merit. Upon the filing of Analyticas and the Companys Chapter 11 petition on November 10, 2008, this litigation was automatically stayed pursuant to provisions of
federal bankruptcy law.

Other proceedings:

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

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

Cooperative Research and Development Agreement:

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

Guarantee Indemnifications:

Under the
terms of the Pulaski Bank and Southwest Bank notes, several board members, executives and other affiliates issued personal guarantees. Biovest agreed to indemnify and hold harmless each guarantor should their guarantees be called by the Pulaski Bank
and Southwest Bank by agreeing to compensate each affected guarantor by an issuance of restricted common stock equal to 700% of the amount of their guarantee. The stock will be issued using a pre-determined value of $1.10 per share. On
December 29, 2008, Pulaski Bank called its guaranty resulting in an aggregate payment of $1.0 million by the guarantors. In January 2009, Southwest Bank called its guaranty resulting in an aggregate payment of $0.2 million by the
guarantor. As a result of their indemnification agreements, the Pulaski Bank and Southwest Bank guarantors are allowed an unsecured claim for the value of approximately 7.6 million shares of Biovests common.



29



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



17. Commitments and contingencies (continued):



Food and Drug Administration:

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

Product liability:

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

Royalty agreements:

On April 17,
2007, Biovest executed an amendment agreement (the Amendment) with Laurus, to defer payments of principal on its $7.8 million loan. 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 Biovests royalty payments to Laurus are required to aggregate to a minimum of $8.0
million with $0.5 million of the minimum royalty having been paid on December 10, 2007 and the balance (if any), less actual royalties paid, being due on May 31, 2012.

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

Stanford University agreement:

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



30



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



17. Commitments and contingencies (continued):



Distribution agreement:

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

Sublicense agreement with
related party

On February 27, 2007, the Company entered into a sublicense agreement (the Accentia Sublicense) with
Revimmune, LLC under which Accentia was granted the exclusive worldwide rights to Revimmune. The perpetual sublicense allows the Company to develop and market a patent pending treatment for autoimmune diseases. The Accentia Sublicense covers
the potential treatment of all autoimmune diseases including but not limited to multiple sclerosis.

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



| |  |  | The Company assumed certain future development, milestone and minimum royalty obligations of Revimmune, LLC under its license with Johns Hopkins
University (JHU). In connection with the Accentia Sublicense, the Company did not pay an upfront fee or reimbursement of expenses. The Company also agreed to pay to Revimmune, LLC a royalty of 4% on net sales, and in the event of a
sublicense, to pay 10% of net proceeds received from any such sublicense to Revimmune, LLC.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Upon the approval of the sublicensed treatment in the U.S. for each autoimmune disease, the Company is required to issue to Revimmune, LLC vested
warrants to purchase 0.8 million shares of the Companys common stock. The warrant which will be granted at the approval of the first sublicensed product will have an exercise price of $8 per share and any subsequent warrant 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 will be responsible, at its sole cost and expense, for the development, clinical trial(s), promotion, marketing, sales and
commercialization of the licensed products.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company has assumed the cost and responsibility for patent prosecution as provided in the license between Revimmune, LLC and JHU to the extent that
the claims actually and directly relate to sublicensed products.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revimmune LLCs manager is a director of the Company.
| | - |  | -----------------------------------------------------

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

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



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



31



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



17. Commitments and contingencies (continued):



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



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

18. Variable Interest Entities:

Accounting for the NMTC financing arrangement and variable interest entities

Biovest 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.

Biovest concluded that Biovax Investment, LLC, Telesis CDE Two, LLC,
Autovax Investment, LLC and St. Louis New Market Tax Credit Fund II, LLC met the definition of variable interest entity. However, for Biovest to be required to apply the provisions of FIN46, 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 Biovest and the related holder:

New Market Tax Credit Transaction I:



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

New Market Tax Credit Transaction II:



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



32



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



18. Variable Interest Entities (continued):



The above table illustrates the weight of the variable interests that are held by Biovest. In addition,
in performing quantitative valuation, Biovest 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, Biovest 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 $20.1 million and liabilities of $15.3 million of the variable interest entities identified above are limited to the instruments referred to in
the description of the NMTC financing arrangement above. In accordance with consolidation principles, these assets and liabilities are eliminated in consolidation leaving the non-controlling interests of Telesis CDE Two, LLC, Biovax Investment, LLC,
AutovaxID Investment, LLC, and St. Louis NMTC Fund II, LLC, reflected on Biovests September 30, 2007 consolidated balance sheet as non-controlling interests in variable interest entities.

Revimmune, LLC

Although the Company
does not have an equity interest in Revimmune, LLC, the Company has the controlling financial interest of Revimmune, LLC, because of the sublicense agreement between the parties and is considered the primary beneficiary, and therefore,, the
financial statements of Revimmune, LLC has been consolidated with the Company as of February 27, 2007 and through March 31, 2009. As of March 31, 2009, Revimmune, LLCs assets and equity were approximately $28,321. Accentia had
no non-controlling interest in earnings from Revimmune, LLC for the six months ended March 31, 2009.

Non-controlling interest in
income (loss)

Biovests non-controlling interest in (income) loss from variable interest entities on its consolidated statement of
operations for the six months ended March 31, 2009 consist of the following:



|                                                                   |  |                |          |  
|------------------------------------------------------------------ |  | -------------- | -------- | -
|                                                                   |  | March 31, 2009 |         
|Biovax Investment LLC                                              |  | $              | 222,596  |  
|Telesis CDE Two, LLC                                               |  |                | (34,139  | )
|AutovaxID Investment, LLC                                          |  |                | 223,386  |  
|St. Louis NMTC Fund II, LLC                                        |  |                | (215,789 | )
|Revimmune, LLC                                                     |  |                |         |  
|                                                                   |  |                |          |  
|Non-controlling interest in losses from variable interest entities |  | $              | 196,054  |  
|                                                                   |  |                |          |  



33



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



19. New Market Tax Credit Transactions:

April 2006 NMTC
Transaction4:

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: the Company, Biolender, LLC (Biolender), Biovax Investment Corp., Biovax
Investment, LLC (Fund), U.S. Bancorp Community Investment Corporation (U.S. 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 million (the Laurus Note). The Company originally guaranteed 64% of any amounts
outstanding under the note. On May 30, 2008, this guaranty was modified to reflect a fixed principal amount of $5.0 million. Under the terms of the Laurus Note, $7.5 million of the principal amount was deposited into a restricted bank account
of Biovest pursuant to a restricted account agreement between Biovest and Laurus. The Company, Analytica and Laurus also entered into an Amended and Restated Stock Pledge Agreement pledging the Companys shares of TEAMM, Analytica, 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 the Company formed Biolender, as a Delaware limited liability company. On April 21, 2006, $2.5 million was released from the restricted account created under the Laurus Note. The release of these
funds was contingent upon their use in Transaction I. These proceeds were used to purchase a 29.5% equity investment in Biolender for $2.5 million. Biovest 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 of the Companys directors. On April 27, 2006, Biovest redeemed 10 million shares of its common stock owned of record by the Company
for a $6.0 million cash payment which equaled the market price of $0.60 per share. The Company used the proceeds of the stock redemption to repay its intraday loan due First Bank. Subsequently, on October 31, 2006, the Company entered into a
Purchase Agreement with Biovest whereby Biovest purchased the Companys 70.5% ownership interest in Biolender. In consideration of the sale of this interest in Biolender, Biovest issued to the Company 10 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 the
Companys common stock near the maturity date.



|4 | In July 2010, Biovest and certain of its affiliates entered into an agreement (the Worcester Restructuring Agreement) with Telesis CDE
Corporation and Telesis CDE Two, LLC (collectively, Telesis), contingent upon submission to and approval by the Bankruptcy Court. The Worcester Restructuring Agreement effectively terminates all agreements and obligations of all parties
pursuant to Transaction I, in consideration of retention by Telesis of an unsecured claim in Biovests Chapter 11 proceeding in the amount of $0.3 million along with a settlement payment in the amount of $85,000 to defray certain legal and
administrative expenses incurred by Telesis. Upon approval by the Bankruptcy Court, Biovests Guaranty, the Companys Guaranty, and all of Biovests subsidiary Guaranties from affiliates and third parties and all other obligations to
all parties to Transaction I will be terminated.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



34



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



19. New Market Tax Credit Transactions (continued):



The proceeds received by the Fund from the aforementioned financing transactions were used to make a
contemporaneous 99.99% equity investment in Telesis CDE II, LLC ($12.0 million) as well as make payment for associated management, legal and accounting fees ($0.1 million). The $12.0 million investment by the Fund to the CDE constituted a qualified
equity investment (QEI) under the NMTC Program authorized by Section 45D of the Internal Revenue Code of 1986, as amended (the Code), resulting in $4.7 million in tax credits.

The CDE is a Community Development Entity that is certified through the U.S. Treasury Department to make QLICI, and is managed and partially owned
(0.01%) by Telesis CDE Corporation, a private financial institution. Telesis CDE Corporation paid $1,200 in consideration for its 0.01% interest in Telesis. The CDE, upon receipt of its equity funding, contemporaneously issued $11.5 million to
Biovax for a 1.0% convertible promissory note payable, due October 27, 2013. The convertible promissory note is convertible into common stock at the option of the CDE within 5 days of the maturity date at a conversion price equaling the then
trading market price of the common stock. The overall arrangement provides that in the event the CDE converts the note payable, the aforementioned note receivable is subject to immediate conversion at the same conversion price. 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 were reflected as an equity financing cost in stockholders equity at a
fair value of $517,000 computed using the Black-Scholes-Merton option pricing model. We also issued warrants to Telesis CDE Corporation to purchase 0.2 million shares of the Company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 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 $12.4 million in principal and interest payments to the CDE. The operating agreement of the CDE stipulates that in the event the QLICI is repaid in the combination of stock and cash, the stock received shall be
distributed to the Fund. Furthermore, any distributable cash received by Telesis CDE II, LLC shall be distributed to the Fund in proportion to the Funds respective percentage interest in the CDE in an amount sufficient to fully pay the
Funds note payable to Biolender. Upon maturity, the Fund will have paid approximately $11.9 million in principal and interest payments to Biolender. At maturity, total equity of the Fund is approximated to be $100,000 resulting from the
difference of $12.4 million in principal and interest payments received less $11.9 million in principal and interest paid less approximately $0.4 million in estimated operating costs of the Fund over the 7.5 year term of the notes. Biolender and
U.S. Bancorp entered into a put option wherein U.S. 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 U.S.
Bancorps investment in the Fund at maturity of both notes (approximately $0.1 million) would be less than the $180,000 U.S. Bancorp would receive upon exercise of the put option and thus it is managements expectation that this option
will be exercised. Thus, prior to maturity of both notes, it is anticipated that the Fund will be 99.99% owned by Biolender. 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.

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 related to the vaccine manufacturing business and assumed responsibility for all accrued vacation time and the maintenance of existing health and other benefits.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



19. New Market Tax Credit Transactions (continued):



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



| |  |  | The Company, Biovest and certain their directors entered into a guarantee arrangement with the CDE for the debt service of Biovax. Biovest has
guaranteed 100% of the debt service while the directors of the Company and have guaranteed up to $6.0 million of the debt service. In addition, the Company 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



36



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



19. New Market Tax Credit Transactions (continued):



| |  |  | Various legal and accounting fees of $108,000 paid directly by Biovax and involved in structuring this transaction were recorded as a reduction to
additional paid-in capital. Various legal and accounting fees of $170,000 paid by entities in which 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

December 2006 NMTC
Transaction5:

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

On December 8, 2006, the Company 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, and is convertible, at the Companys option, to shares of Biovests common
stock at a conversion price of $0.32 per share. Upon closing of Transaction II, Biovest repaid the Company $1.1 million. The remaining $2.0 million of principal and all accrued and unpaid interest is included in notes payable, related parties in the
accompanying September 30, 2008 consolidated balance sheet, and is due upon 30 days advance written notice by the Company.

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

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



|5 | In July 2010, Biovest and certain of its affiliates entered into an agreement (the St. Louis Restructuring Agreement) with St. Louis
Development Corporation and Saint Louis New Markets Tax Credit Fund II, LLC (collectively SLDC), contingent upon submission to and approval by the Bankruptcy Court. The St. Louis Restructuring Agreement effectively terminates all
agreements and obligations of all parties pursuant to Transaction II, in consideration of retention by SLDC of an unsecured claim in Biovests Chapter 11 proceeding in the amount of $160,000 along with a settlement payment in the amount of
$62,000 to defray certain legal and administrative expenses incurred by SLDC. Upon approval by the Bankruptcy Court, Biovests Guaranty, the Companys Guaranty, and all of Biovests subsidiary Guaranties from affiliates and third
parties and all other obligations to all parties to Transaction II will be terminated.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



37



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



19. New Market Tax Credit Transactions (continued):



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

CDE II is a Community Development Entity that is certified through the U.S. Treasury Department to make QLICI, and is managed and partially owned (0.01%)
by St. Louis Development Corporation, a not-for-profit corporation organized in Missouri. St. Louis Development Corporation paid $1,000 in consideration for its 0.01% interest in CDE II. CDE II, upon receipt of its equity funding, contemporaneously
issued a QLICI to AutovaxID, evidenced by a $7.7 million subordinated promissory note dated as of December 8, 2006 which matures on December 8, 2036. Pursuant to a call right, for a period of six months starting on December 8,
2013, the CDE will have the right to call for the repayment of the CDE II Loan in the amount of $5.7 million, in full satisfaction of the principal on the CDE II Loan. Interest on the outstanding principal amount of the CDE II Loan accrues at the
rate of 5.82% per annum, non-compounding and is payable in arrears on an annual basis having commenced on January 2, 2007 and continuing until maturity. The CDE II Loan is guaranteed in full by Biovest and also guaranteed up to an amount
of $4.5 million by the Companys officers and directors. Biovest issued warrants to purchase 2.6 million shares of common stock to these officers and directors as compensation for their guarantees. The guarantees were treated in a manner
similar to contributed service and their fair value of $1.4 million was charged to expense upon issuance. 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.

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

The transaction was structured so that, on June 9, 2014, AutovaxID will have paid approximately $9.1 million in principal and interest payments to
CDE II. The operating agreement of CDE II stipulates that any distributable cash received shall be distributed to Fund II in proportion to the respective percentage interest Fund II has in CDE II in an amount sufficient to fully pay the Fund II note
payable to Biolender II. On June 9, 2014, Fund II will have paid approximately $9.0 million in principal and interest payments to Biolender II (assuming CDE II exercises its right to call the CDE II loan for $5.7 million on June 9, 2014).
At maturity then, total equity of the Fund is approximated to be $100,000, resulting from the difference of $9.1 million in principal and interest payments received less $9.0 million in principal and interest paid over the 7.5 year term of the
notes.

Biolender II and U.S. Bancorp entered into a put option wherein U.S. Bancorp will have the right to put its investment in Fund II
to the Company near the maturity of the instruments at a price of $120,000. Management has concluded that the fair value of U.S. Bancorps investment in Fund II at maturity of both notes (approximately $100,000) would be less than the $120,000
U.S. Bancorp would receive upon exercise of the put option and thus it is managements expectation that this option will be exercised. Thus, prior to maturity of both notes, it is anticipated that the Fund will be 100% owned by Biolender II.
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 ($120,000) at the present value of its cash flows, using market interest rates that would likely be considered by market participants trading similar instruments.

Salient terms and conditions of Transaction II are as follows:



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



38



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



19. New Market Tax Credit Transactions (continued):



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



| |  |  | 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 U.S. Bancorp and the managing member of the CDE agree on the reinvestment of such proceeds in an alternative investment that would
qualify as a QLICI and (iii) AutovaxID or the Individual Guarantors (as defined below) under the Tax Credit and Reimbursement and Indemnity Agreement pay to U.S. Bancorp the recapture amount so specified is such agreement.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | The tax credits arising from this transaction were fully assigned to U.S. Bancorp. AutovaxID has entered into an indemnification agreement directly
with U.S. Bancorp that provides for indemnification in the event of tax credit recapture from events caused by AutovaxID. AutovaxID is contractually required to maintain the following covenants to avoid tax credit recapture: (i) AutovaxID shall
maintain its status as a qualified active low-income business; (ii) At least fifty percent of the use of the tangible property of 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 of the services performed for AutovaxID by its employees will be within low-income community as defined by Section 45D(e) of the U.S. Tax Code; (iv) Less than five percent of the
average of the unadjusted bases of the property of AutovaxID will be attributable to collectibles (as defined in Section 408(m)(2) of the Code, and which includes any work of art; any rug or antique; any metal or gem; any stamp or coin; and any
alcoholic beverage) other than collectibles that are held primarily for sale to customers in the ordinary course of business; (v) Less than five percent of the average of the unadjusted bases of the property of AutovaxID will be
attributable to nonqualified financial property (as defined in Section 1397C(e) of the Code and in Section 1.45D-1(d)(4)(i)(E) of the Regulations, and which includes debt, stock, partnership interests, options, futures contracts, forward
contracts, warrants, notional principal contracts, annuities and other similar property); (vi) No part of the business activities of AutovaxID will consist of the operation of any private or commercial golf course, country club, massage parlor,
hot tub facility, or suntan facility, race track or other facility used for gambling, or store the principal business of which is the sale of alcoholic beverages for consumption off premises; (vii) No part of AutovaxIDs business
activities will include the rental to others of residential rental property (the term residential rental property is defined in Section 168(e)(2)(A) of the Code as meaning any building or structure if eighty percent or more of the
gross rental income from such building or structure for the taxable year is rental income from dwelling units); (viii) The predominant trade or business of AutovaxID will not include the development or holding of intangibles for sale or
license, as provided under Section 1.45D-1(d)(5)(iii) of the Regulations; (ix) Farming (within the meaning of Section 2032A(e)(5)(A) or (B) of the Code) will not be an activity of AutovaxID; (x) AutovaxID will generate
revenues by the date of December 8, 2009; (xi)AutovaxID shall not discontinue conducting business, shall not materially change the nature of its business, and shall not materially change the manner in which its business activities are
conducted, other than changes in the nature of its business or the manner in which it conducts its business that do not cause the making of the Loan by the Lender to cease to constitute a qualified low-income community investment as such
term is used in Section 45D of the Code (as determined by the Lender in its good faith judgment and based upon the advice of counsel); (xii) AutovaxID will not be a bank, credit union or other financial institution; (xiii) AutovaxID
will not maintain a qualified low-income building under Section 42 of the Code; (xiv) AutovaxID will not become a single-member entity treated as disregarded as separate from its owner for
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



39



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



19. New Market Tax Credit Transactions (continued):



| | federal income tax purposes, nor be liquidated or merged into another entity without the written consent of CDE II; and (xv) AutovaxID and Biovest will operate consistently with the License
between AutovaxID and Biovest, and will not amend such agreement without prior written consent of CDE II. An example of an event that would not cause a recapture is changes in the Internal Revenue Code that results in such recapture. The total
indemnification amount could be $3.12 million (representing 39% of the $8.0 million qualified investment). However, in accordance with Financial Interpretation 45 Guarantors Accounting and Disclosure Requirements for Guarantees, including
Indirect Guarantees of the Indebtedness of Others, the conditions and events that could result in recapture are within AutovaxIDs control. Therefore, this potential liability is not reflected in the consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | 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 (CDE II, and Fund II) and involved in structuring this transaction were recorded as a
reduction to non-controlling interests in variable interest entities on 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 Fund II and payable to Biolender II.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

20. Subsequent Events:

Collegium Compromise:

On April 28,
2009, the Bankruptcy Court entered an Order approving a compromise and settlement (the Collegium Settlement Agreement) between the Company and Collegium Pharmaceuticals, Inc. (Collegium). The Bankruptcy Courts Order
confirmed the rejection of the pre-petition Licensing and Distribution Agreement dated November 22, 2005 (License Agreement), executed by us, TEAMM and Collegium. The Collegium Settlement Agreement provides that:



| | (a) | Collegium shall pay to the Company $0.1 million and Collegium shall be free to use, license, sell, offer to sell, import, make, have made or otherwise exploit any and
all intellectual property rights and other assets of Collegium, which may be or which may have been subject at any time to the terms of the License Agreement, free from any of the Companys claim, right, title or interest.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The Companys sole remedy against Collegium shall be the right to seek any monetary damages from Collegium available under applicable law or equitable principles
(and expressly not against any licensees, transferees or purchasers of any intellectual property rights or other assets granted to the Company under the License Agreement ), including, but not limited to, claims arising out of or relating to
Collegiums conduct relating to or under the License Agreement, alleged breach of the License Agreement, alleged negligence in connection with or related to the License Agreement and alleged misrepresentations, which claims are specifically
preserved without limitation (hereafter, the Excluded Claims).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | Collegium shall retain all defenses available under applicable law including, but not limited to, the defenses of termination, setoff and recoupment, all of which
defenses are specifically preserved (the Excluded Defenses); provided, however, that Collegium waives all rights to receive any affirmative recovery of money from us or the Companys respective bankruptcy estates of any nature
whatsoever on account of any rights, claims or defenses, including, but not limited to, any claim for milestone payments allegedly owed by the Company under the License Agreement or any claims against any of the Companys bankruptcy estates in
the Companys Chapter 11 proceedings (including, but not limited to, any administrative expense or other priority claim, any claim for rejection damages, any claims arising prior to the Petition Date, or any claims scheduled by us). In
addition, Collegiums payment to the Company of $0.1 million shall be credited to any recovery, if any, by the Company on the Excluded Claims, thereby reducing any such recovery against Collegium by $0.1 million.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



20. Subsequent Events (continued):



Analytica-Germany:

On December 1, 2009, Analytica separated the existing employees of its Analytica International GmbH subsidiary into two business units:
(1) Outcomes Research and (2) Clinical Trials and Cardiac Research. Effective December 1, 2009, Analytica International GmbH terminated its employment relationship with all employees in the Outcomes Research unit, and these
employees were simultaneously hired by Analytica and integrated into Analyticas U.S. operations. The remaining employees in the Clinical Trials and Cardiac Research unit remain employed by the Analytica International GmbH subsidiary.

On March 18, 2010, Analytica International GmbH filed for insolvency under the provisions of the Insolvency Ordinance administered by
the German Courts. Day to day business operations of Analytica International GmbH has ceased, and an Insolvency Receiver has since been appointed by the German Court.

Entry into and termination of Leases:

On May 7, 2009, the Bankruptcy Court entered an Order confirming the entry into a new Sub-lease, dated March 31, 2009, for
replacement office space located at 24 West 40thStreet,
New York, New York, to be occupied by Analytica, consisting of approximately 4,000 square feet.

Effective on March 1, 2010, and pursuant
to the authorization of the Bankruptcy Court, Analytica entered into a new sub-lease for office space located at Meeraner Platz 1, 79539 Lorrach, Germany, to be occupied by Analyticas employees in Germany.

BDSI/Arius Settlement:

On
February 17, 2010, the Bankruptcy Court, entered an Order approving an Emezine Settlement Agreement (the Settlement Agreement) between the Company and BioDelivery Sciences International, Inc. (BDSI), entered into as
of December 30, 2009. Parties to the Settlement Agreement are the Company, its wholly-owned subsidiary, TEAMM, BDSI, and BDSIs wholly-owned subsidiary, Arius Pharmaceuticals, Inc. (Arius).

The purpose of the Settlement Agreement is to memorialize the terms and conditions of a settlement between the Company and BDSI (the
Settlement) of claims relating to a Distribution Agreement dated March 12, 2004, between Arius and TEAMM (the Distribution Agreement) related to the marketing and distribution of Emezine, a product licensed by Arius
from Reckitt Benckiser Healthcare (UK) Limited. Following the issuance in February 2006 by the FDA of a non-approvable letter with respect to the New Drug Application (NDA) for Emezine, BDSI ceased its Emezine related development efforts
and on December 17, 2008, the Distribution Agreement was terminated. The Settlement Agreement resolves the Companys claims against BDSI under the terminated Distribution Agreement.

The Settlement Agreement provides that the parties mutually release all claims that either may have against each other and, in connection therewith, the
Company:



| | (a) | received $2.5 million from BDSI (the $2.5 Million Payment); and
| | --- | -----------------------------------------------------------------



| | (b) | received the following royalty rights (the Product Rights) from BDSI with respect to BDSIs BEMA Granisetron product candidate (BEMA
Granisetron) (or in the event it is not BEMA Granisetron, the third BDSI product candidate, excluding BEMA Bupremorphine, as to which BDSI files an NDA, which, together with BEMA Granisetron, shall be referred to hereinafter as the
Product):
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | 70/30 split (BDSI/Company) of royalty received if a third party sells the Product and 85/15 split on net sales if BDSI sells the Product; and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | BDSI will, from the sale of the Product, fully recover amounts equal to (1) all internal and external worldwide development costs of the Product
(Costs) plus interest (measured on weighted average prime interest rate from first dollar spent until Product launch) and (2) the $2.5 Million Payment plus interest (measured on weighted average prime interest rate from the time of
payment until Product launch) before the Company begins to receive its split as described in (b) (i) above; and
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



41



---

##### Table of Contents

ACCENTIA BIOPHARMACEUTICALS, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED MARCH 31, 2009 AND 2008



20. Subsequent Events (continued):



| | (c) | issued to BDSI a warrant (Warrant) to purchase 2.0 million shares of the Companys majority-owned subsidiary, Biovest, from the Company, with an
exercise price equal to 120% of the closing bid price ($0.84) of Biovests common stock as of the date the Bankruptcy Court enters a final order authorizing the Company to carry out the Settlement Agreement (February 17, 2010), with the
issuance of the Warrant to occur upon receipt of the $2.5 Million Payment by us (March 4, 2010). The Warrant will be exercisable immediately and for a period of seven (7) years from the date of issuance. During the initial two
(2) year exercise period, any exercise of the Warrant by BDSI will be subject to approval by Biovest.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the event that
BDSI receives any sublicensing or milestone payments associated with the Product up to and including the NDA approval, BDSI will apply 30% of such payments toward payback of the Costs of the Product plus interest and the $2.5 Million Payment
plus the interest.

On March 4, 2010, the $2.5 Million Payment was received by the Company. The transfer of Product Rights shall become
effective only upon the Companys exit from Reorganization, defined as the effective date of the Companys reorganization plan that is confirmed by the Bankruptcy Court. The transfer of Product Rights shall be deemed terminated in the
event that the Company does not exit Reorganization on or before December 31, 2010.

In the event of a proposed sale of BDSI or its
assets, BDSI has the right to terminate its Product Right payment obligations to the Company under the Settlement Agreement upon the payment to the Company of an amount equal to the greater of: (i) $4.5 million; or (ii) the fair market
value of the Product Rights as determined by an independent third party appraiser. Further, if the Product Right is terminated, the Warrant described above will be terminated if not already exercised, and, if exercised, an amount equal to the strike
price will, in addition to the amount in (i) or (ii) above, be paid to the Company.

Filing of Plan of Reorganization:

On May 28, 2010, the Company filed its Joint Plan of Reorganization and on July 12, 2010, the Company filed its Joint Disclosure
Statement with the Bankruptcy Court. On August 9, 2010, the Bankruptcy Court held a hearing on the Joint Disclosure Statement and scheduled a confirmation hearing on the Joint Plan of Reorganization for September 22, 2010.



42



---

##### 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 Report on Form 10-Q, it is important that you also read the financial statements and related notes
included elsewhere in this Form 10-Q. This section of this Quarterly Report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. We use words such as
anticipate, estimate, plan, project, continuing, ongoing, expect, believe, intend, may, will, should,
could, and similar expressions to identify forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the matters discussed under the
caption Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008 and other risks and uncertainties discussed in our other filings with the Securities and Exchange Commission.

Overview

Headquartered in Tampa, Florida, Accentia Biopharmaceuticals, Inc. (Other OTC: ABPIQ) is a biotechnology company that is
developing Revimmune as a comprehensive system of care for the treatment of multiple sclerosis (MS) and other human autoimmune diseases and, through its majority-owned subsidiary, Biovest International, Inc.,
BiovaxID® as a therapeutic cancer vaccine for treatment of follicular non-Hodgkins lymphoma
(FL) and mantle cell lymphoma (MCL). Additionally, through our, wholly-owned subsidiary, Analytica International, Inc., we conduct a health economics research and consulting business (Analytica International, Inc.) which we
market to the pharmaceutical and biotechnology industries, using our cash flow to support our corporate administrative and product development activities.

Revimmune is being developed as a comprehensive system of care for the treatment of MS and other human autoimmune diseases. In the treatment of MS,
Revimmune seeks to restore neurological and physical functions that have been lost due to disease progression as well as to delay further disease progression. Revimmunes primary mode of action is to eliminate mature white blood cells
(lymphocytes) that circulate throughout the body, including the white blood cells that are believed to cause the progressive disability characteristic of autoimmune disease. At the same time, Revimmune selectively seeks to spare immature immune stem
cells in the bone marrow which can repopulate the immune system without the autoimmunity. As part of Revimmune therapy, an immune rebooting process takes place as the marrow stem cells reform the immune system with new cells lacking
autoimmunity. We are currently planning a Phase 3 clinical trial of Revimmune for the treatment of MS. Additionally, we anticipate potential future studies in other conditions with an underlying autoimmune component.

Through a collaboration with the National Cancer Institute (NCI), our majority-owned subsidiary,
Biovest International, Inc. (OTCQB: BVTI) (Biovest) has developed a patient-specific cancer vaccine,
BiovaxID®, which has demonstrated statistically significant Phase 3 clinical benefit by prolonging disease-free
survival in follicular non-Hodgkins lymphoma patients treated with BiovaxID. Based on Phase 2 and Phase 3 clinical trial results, Biovest plans discussions with the U.S. Food and Drug Administration (the FDA) and international
regulatory agencies regarding marketing approval.

Additionally, through our wholly-owned subsidiary, Analytica International, Inc.
(Analytica), based in New York City, we conduct a global research and strategy consulting business that provides professional services to the pharmaceutical and biotechnology industries. Since 1997, Analytica has expertly directed
research studies and projects, including traditional health economic modeling projects, database studies, structured reviews, health technology assessments, reimbursement analyses, and value dossiers.



43



---

##### Table of Contents

Results of Operations

Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008

Consolidated Results of Operations

Net Sales.Our net sales for the three months ended March 31, 2009 excluding discontinued operations were $3.3 million, a decrease of
$0.6 million, or 17%, from the three months ended March 31, 2008. The decrease in our consolidated net sales reflects a decrease of $0.6 million in Biovests net sales. Sales from the instrumentation segment decreased $0.1 million due
mainly to a decrease in unit sales of Biovests disposable units used in Biovests hollow-fiber production instrumentation. Biovests service revenue decreased $0.5 million compared to the same quarter ended March 31, 2009.
Analyticas revenue decreased $0.1 million, or 4%, from the same quarter in the previous fiscal year.

Cost of Sales.Our
cost of sales for the three months ended March 31, 2009 was $2.2 million, or 68% of net sales, compared to $2.1 million, or 53% of net sales, during the three months ended March 31, 2008. This represented an increase of $0.1 million,
or 7%, over the three months ended March 31, 2008.

Research and Development Expenses.Our research and development costs
were $0.3 million for the three months ended March 31, 2009; a decrease of $2.4 million, or 90%, over the three months ended March 31, 2008. Our Biovest subsidiarys, research and development expense decreased by $0.9 million during
the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008. 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. Furthermore, through our voluntary petition for reorganization, we were able to reject the operating lease on
our research and development facility in Massachusetts on December 8, 2008. Our research and development expense decreased approximately $1.4 million due to the completion of the SinuNase clinical trials in fiscal year 2008.

General and Administrative Expenses.Our general and administrative expenses were $1.8 million for the three months ended March 31,
2009; a decrease of $2.9 million, or 61%, over the three months ended March 31, 2008. This decrease is primarily due to a reduction in headcount associated with our Chapter 11 bankruptcy petition filed on November 10, 2008.

Derivative gain/ loss.Derivative loss was $8.6 million for the three months ended March 31, 2009 as compared to a gain of $3.4
million for the three months ended March 31, 2008. This decrease is primarily related to the derivatives issued in conjunction with our various financings, and results primarily from the increase in our common stock price, on which the
derivative liabilities are based, during the quarter ended March 31, 2009.

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, 2009. 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. As consideration
for the forbearance, Biovest was to pay to Laurus an additional $1.8 million upon the maturity of the note on 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 the 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 three months ended March 31, 2008.



44



---

##### Table of Contents

Six Months Ended March 31, 2009 Compared to the Six Months Ended March 31, 2008

Consolidated Results of Operations

Net Sales.Our net sales for the six months ended March 31, 2009 excluding discontinued operations were $6.0 million, a decrease of
$1.5 million, or 26%, from the six months ended March 31, 2008. The decrease in our consolidated net sales was primarily due to a decrease of $1.2 million in Biovests net sales. Sales from the instrumentation segment decreased
$0.5 million due mainly to a decrease in unit sales of Biovests disposable units used in Biovests hollow-fiber production instrumentation. Biovests service revenue decreased $0.7 million compared to the same period in the
previous fiscal year. Analyticas revenue decreased $0.4 million, or 8%, from the same period in the previous fiscal year.

Cost of
Sales.Our cost of sales for the six months ended March 31, 2009 was $4.1 million, or 69% of net sales, compared to $4.5 million, or 60% of net sales, during the six months ended March 31, 2008. This represented a decrease of $0.4
million, or 8%, Biovests margin decrease from 47% to 22% due to unabsorbed overhead in both cell culture and instrumentation.

Research and Development Expenses.Our research and development costs were $0.7 million for the six months ended March 31, 2009; a
decrease of $5.7 million, or 88%, over the six months ended March 31, 2008. Our Biovest subsidiarys research and development expense decreased by $1.5 million during the six months ended March 31, 2009 compared to the six months
ended March 31, 2008. 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. Furthermore, through our voluntary petition for reorganization, we were able to reject the operating lease on our research and development facility in Massachusetts
on December 8, 2008. Our research and development expense decreased approximately $4.2 million due to the completion of the SinuNase clinical trials in fiscal year 2008.

General and Administrative Expenses.Our general and administrative expenses were $4.4 million for the six months ended March 31,
2009; a decrease of $4.8 million, or 52%, over the six months ended March 31, 2008. This decrease is primarily due to a reduction in headcount associated with our petition for Chapter 11 bankruptcy petition filed on November 10, 2008.

Derivative gain/ loss.Derivative gain was $8.6 million for the six months ended March 31, 2009, as compared to a gain of
$1.1 million for the six months ended March 31, 2008. This increase is primarily related to the derivatives issued in conjunction with our various financings, and results primarily from the decrease in our common stock price, on which the
derivative liabilities are based, during the six months ended March 31, 2009.

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, 2009. 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. As consideration
for the forbearance Biovest was to pay to Laurus an additional $1.8 million upon the maturity of the note on 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 the 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, 2009.



45



---

##### Table of Contents

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.

We have historically had significant losses from operations. On March 31, 2009, we
had an accumulated deficit of approximately $301 million and a working capital deficit of approximately $94.9 million including those liabilities subject to compromise through our Chapter 11 proceedings. We filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Middle District of Florida (the Bankruptcy Court) on November 10, 2008. We
will continue to operate as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Companys independent
registered certified public accounting firms report included a going concern uncertainty on the financial statements for the year ended September 30, 2008, citing significant losses and working capital deficits at that date,
which raised substantial doubt about our ability to continue as a going concern. We intend to attempt to meet our cash requirements through proceeds from our cell culture and instrument manufacturing activities from our Biovest subsidiary and income
from our Analytica subsidiary, the use of cash on hand, trade-vendor credit, and short-term borrowings. Additionally, we may seek public or private equity investment, short or long term debt financing or strategic relationships such as investments
or licensees. Our ability to continue present operations and to continue our product development efforts are dependent upon our ability to successfully emerge from Chapter 11 and to obtain significant external funding, which raises substantial doubt
about our ability to continue as a going concern. The need for funds is expected to grow as we continue our efforts to commercialize Revimmune,
BiovaxID®, and AutovaxID.

Debt
Financing6

Credit Facility with Laurus Master Fund, Ltd.On
April 29, 2005, we entered into a credit facility with Laurus Master Fund, Ltd. (Laurus). 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 $10.0 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 $5.0 million, provided that the aggregate principal amount under both notes combined may not exceed $5.0 million. 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.

On
October 21, 2007, Laurus extended a previously incurred 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.

On June 18, 2008, we entered into agreements with Laurus (the Payoff and Amendment Agreements)
pursuant to which: (i) the Amended and Restated Secured Non-Convertible Revolving Note in the original principal amount of $5.0 million dated as of April 29, 2005 (the Revolving Note) was satisfied; (ii) the Second Amended
and Restated Secured Convertible Minimum Borrowing Note in the original principal amount of $2.5 million dated as of April 29, 2005 (the Minimum Borrowing Note) and the Second Amended and Restated Secured Convertible Term
Note in the original principal amount of $5.0 million dated as of April 29, 2005 (the Term Note) were modified to extend the maturity to December 31, 2008 and to provide that no interest would accrue or be paid until
December 31, 2008, at which time the notes would be marked Paid, conditioned upon satisfaction of stated conditions; (iii) Laurus released its security interest in all our assets except the capital stock and assets of our
subsidiary, Analytica, and our rights and interests in BiovaxID royalties under the Royalty Agreement dated October 31, 2008.



|6 | As a result of the November 10, 2008, Chapter 11 filings by our subsidiaries and us, all actions to enforce or otherwise effect our obligations and payments
under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy law.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



46



---

##### Table of Contents

The other material terms and conditions of the Payoff and Amendment Agreements are as follows:



| |  |  | We entered into an Assignment of Sale Proceeds with Laurus whereby we assigned to Laurus the proceeds of a contemplated sale of Analytica, up to a
total of $8.8 million, with us and Laurus equally dividing any proceeds of such a sale in excess of $8.8 million. This sale of Analytica (and/or cash payment in the amount of $8.8 million) was required to occur on or before December 31, 2008.
If we did not sell Analytica by December 31, 2008, we had the right to make cash payment to Laurus up to the amount of the shortfall. Since, we did not sell Analytica by December 31, 2008 and did not receive sale proceeds or make other
cash payments of $8.8 million, Laurus may seek the cash shortfall from us or may elect to take possession of the stock of Analytica, and we will continue to be obligated for any deficiency in the event Laurus sells Analytica. Laurus also has the
right to receive the assignment of additional royalty rights as described below.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We entered into an Assignment of Rights Under Royalty Agreement with Laurus whereby we assigned to Laurus a royalty of 4% of worldwide sales of
BiovaxID reducing our royalty percentage in BiovaxID from 19.5% to 15.5%. The Assignment of Rights Under Royalty Agreement additionally provides for the potential of additional royalties which may be assigned to Laurus under certain circumstances.
Since no sale of Analytica took place by December 31, 2008, and no cash payment was made by us to Laurus, Laurus is to receive an additional assignment of 2% royalty in BiovaxID. In addition, since Analytica was not sold and payment of $8.8
million was not made by December 31, 2008, Laurus has the option to elect to (a) take possession of the stock of Analytica and look to us for any deficit resulting from a sale of Analytica by Laurus or (b) receive an additional
royalty in BiovaxID calculated on the basis of 1.0% of additional royalty for each $1.0 million shortfall in payment below $8.8 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We entered into a clarification with Laurus of our existing guaranty obligation with respect to the outstanding Secured Promissory Note of Biovest to
Laurus to fix the amount guaranteed by us at $4.9 million.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Minimum Borrowing Note and the Term Note (the Continuing Notes) continue in existence but were modified to extend the maturity date to
December 31, 2008, and to provide that interest would not accrue until December 31, 2008, and to further clarify that any payment under the Continuing Notes will reduce our aggregate indebtedness to Laurus of $8.8 million and will not
alter or expand Laurus rights at December 31, 2008 as described herein. Laurus existing right to convert amounts due under the Continuing Notes into our common stock continues and the conversion price was reduced to $1.20 per share.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We determined the above modification was within the scope SFAS15 and EITF 02-04. Therefore, we have recorded the debt in
the amount of the future cash payments of $8.8 million. As a result of the November 10, 2008 Chapter 11 filings by our subsidiaries and us, all actions to enforce or otherwise effect our obligations and payments under any debt facility
were automatically stayed pursuant to provisions of federal bankruptcy law.

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 million (the Note) and a warrant to purchase up to 18,087,889 shares of Biovests common stock at an exercise price of $0.01 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, $0.299 million of the principal amount was disbursed at the closing to Laurus and other third parties to cover closing
fees and expenses relating to the transaction, and $7.799 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under otherwise agreed by Laurus, 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 New Market Tax Credits (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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



47



---

##### Table of Contents

| |  |  | Pursuant to the original terms of the Note, Biovest was required to make certain principal and interest payments commencing in calendar year 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 and was effective April 17, 2007 (the Letter Agreement). Biovest closed a short-term borrowing of $0.75 million from Pulaski Bank and Trust Company of St. Louis, MO (Pulaski Bank). In
addition to formalizing and continuing Laurus forbearance, the Letter Agreement rescheduled future payments due from Biovest to Laurus under the Note. Under the Letter Agreement past due and ongoing principal payments on the Note were deferred
until August 1, 2007, when adjusted monthly principal payments of $0.3 million per month were commenced. 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 with $0.5 million of the minimum royalty being payable on December 31, 2007, and the balance (if any), less actual royalties paid, being due at the end of the five year royalty term. In
addition, upon satisfaction of certain conditions of the Letter Agreement, Laurus consented to Biovest seeking and, if available, entering into bridge loans in an aggregate amount of up to $7.0 million.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Note became due and payable on March 31, 2009, provided that any portion of the principal amount not contained in the Restricted Account would
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 would be $9,060.61 per month, provided that as amounts are released from the
Restricted Account from time to time, such amounts would be added to the amortizing portion of the Note, and the monthly payments would increase accordingly. The Note can be prepaid by Biovest at any time without penalty.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The outstanding principal amount of the Note bears interest at a rate equal to the greater of the prime rate plus 2.0% or 9.0% per annum, except
that any portion of the principal amount contained in the Restricted Account bears 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 its Biovax,
Inc. subsidiary, were pledged by Biovest as collateral for the Note and its 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 $0.01 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 SEC 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Note contains 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.

On July 31, 2008, Biovest again extended the maturity date of all debt outstanding to Laurus and Valens Offshore SPV II, Corp. and Valens U.S. SPV
I, LLC (collectively, the Valens Funds). This included total debt in the principal amount of $14.6 million consisting of the remaining principal outstanding on: 1) the $7.8 million note closed in March 2006; 2) the $0.5 million
notes closed in October 2007; and 3) the $8.5 million notes closed in December 2007. Under the terms of the restructuring, maturities of all the notes were extended to July 31, 2009, and will carry no amortizing payments until maturity.
Interest on all principal outstanding was amended to 30% per annum, with 10% payable monthly and 20% accruing and payable at maturity. We also agreed to pay an additional $4.4 million fee on the notes, payable at maturity. As a result
of the November 10, 2008, Chapter 11 filings by our subsidiaries and us, all actions to enforce or otherwise effect our obligations and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy
law.



48



---

##### Table of Contents

As a result of the November 10, 2008, Chapter 11 filings by Biovest and its subsidiaries, all
actions to enforce or otherwise effect our obligations and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy law.

New Market Tax Credit Financing.On April 25,
20067, Biovests wholly-owned subsidiary, Biovax, Inc. (Biovax) closed a financing transaction (Transaction I) that was structured in an effort to obtain certain
perceived advantages and enhancements from the New Markets Tax Credit (NMTC) regulations adopted under the auspices of the United States Department of the Treasury in 2002 to provide incentive for investing in businesses located in
qualifying census tracts, or areas with a median income below the poverty line. The NMTC was provided for in the Community Renewal Relief Act of 2000 (the Act) and permits taxpayers (whether companies or individuals) to claim
credits against their Federal income taxes for up to 39% of qualified investments in the equity of Community Development Entities (CDE). CDE are privately managed investment institutions that are certified to make Qualified Low-Income
Community Investments (QLICI). The following parties were involved in Transaction I: our Company, Biolender, LLC (Biolender), Biovax Investment Corp., Biovax Investment, LLC (Fund), U.S. Bancorp Community
Investment Corporation (U.S. 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 us a secured promissory note in the principal amount of $7.799 million (the Laurus Note). We originally guaranteed 64% of any amounts outstanding under the note. On May 30, 2008, this guaranty
was modified to reflect a fixed principal amount of $5.0 million. Under the terms of the Laurus Note, $7.5 million of the principal amount was deposited into Biovests restricted bank account (the Restricted Account) pursuant to a
restricted account agreement between Biovest and Laurus. Our Company along with our wholly-owned subsidiary, Analytica and Laurus also entered into an Amended and Restated Stock Pledge Agreement pledging our shares of TEAMM, Analytica,
Biovests and our membership interest in 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, we, along with Biovest, formed Biolender, as a Delaware limited liability company. On April 21, 2006,
$2.5 million was released from the Restricted Account created under the Laurus Note. The release of these funds was contingent upon their use in Transaction I. These proceeds were used to purchase a 29.5% equity investment in Biolender for $2.5
million. We 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 of our directors. On April 27, 2006,
Biovest redeemed 10.0 million shares of common stock owned of record by us for a $6.0 million cash payment which equaled the market price of $0.60 per share. We used the proceeds of the stock redemption to repay our intraday loan due First
Bank. Subsequently, on October 31, 2006, Biovest entered into a Purchase Agreement with us whereby, Biovest purchased our 70.5% ownership interest in Biolender. In consideration of the sale of this interest in Biolender, Biovest issued to us
10.0 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 our common stock near the maturity date.



|7 | In July 2010, Biovest and certain of its affiliates entered into an agreement (the Worcester Restructuring Agreement) with Telesis CDE Corporation and
Telesis CDE Two, LLC (collectively, Telesis), contingent upon submission to and approval by the Bankruptcy Court. The Worcester Restructuring Agreement effectively terminates all agreements and obligations of all parties pursuant to
Transaction I, in consideration of retention by Telesis of an unsecured claim in Biovests Chapter 11 proceeding in the amount of $0.3 million along with a settlement payment in the amount of $85,000 to defray certain legal and administrative
expenses incurred by Telesis. Upon approval by the Bankruptcy Court, our Guaranty, Biovests, and all of its subsidiary Guaranties from affiliates and third parties and all other obligations to all parties to Transaction I will be terminated.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



49



---

##### Table of Contents

The proceeds received by the Fund from the aforementioned financing transactions were used to make a
contemporaneous 99.99% equity investment in Telesis CDE II, LLC ($12.0 million) as well as make payment for associated management, legal and accounting fees ($0.1 million). The $12.0 million investment by the Fund to the CDE constituted a qualified
equity investment (QEI) under the NMTC Program authorized by Section 45D of the Internal Revenue Code of 1986, as amended (the Code), resulting in $4.7 million in tax credits.

The CDE is a Community Development Entity that is certified through the U.S. Treasury Department to make QLICI, and is managed and partially owned
(0.01%) by Telesis CDE Corporation, a private financial institution. Telesis CDE Corporation paid $1,200 in consideration for its 0.01% interest in Telesis. The CDE, upon receipt of its equity funding, contemporaneously issued $11.5 million to
Biovax for a 1.0% convertible promissory note payable, due October 27, 2013. The convertible promissory note is convertible into common stock at the option of the CDE within five 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 its 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-Merton option pricing model. We also issued warrants to Telesis CDE Corporation to purchase 0.2 million shares of our 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 us 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 us and $1.3 million was paid to us for the BiovaxID vaccines in various stages of production. The remaining $2.6 million was used to
cover ongoing operational expenses.

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

Salient terms and conditions of Transaction I are as follows:



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



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



50



---

##### Table of Contents

| | low-income community as defined by Section 45D(e) of the U.S. Tax Code; (iii) at least fifty percent of the services performed for Biovax by its employees will be within low-income
community as defined by Section 45D(e) of the U.S. Tax Code; (iv) less than five percent of the average of the unadjusted bases of the property of Biovax will be attributable to collectibles (as defined in Section 408(m)(2) of the
Code, and which includes any work of art; any rug or antique; any metal or gem; any stamp or coin; and any alcoholic beverage) other than collectibles that are held primarily for sale to customers in the ordinary course of business; (v) less
than five percent of the average of the unadjusted bases of the property of Biovax will be attributable to nonqualified financial property (as defined in Section 1397C(e) of the Code and in Section 1.45D-1(d)(4)(i)(E) of the Regulations,
and which includes debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities and other similar property); (vi) no part of the business activities of Biovax will consist
of the operation of any private or commercial golf course, country club, massage parlor, hot tub facility, or suntan facility, race track or other facility used for gambling, or store the principal business of which is the sale of alcoholic
beverages for consumption off premises; (vii) no part of Biovaxs business activities will include the rental to others of residential rental property (the term residential rental property is defined in
Section 168(e)(2)(A) of the Code as meaning any building or structure if eighty percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units); (viii) The predominant
trade or business of Biovax will not include the development or holding of intangibles for sale or license, as provided under Section 1.45D-1(d)(5)(iii) of the Regulations; (ix) Farming (within the meaning of Section 2032A(e)(5)(A) or
(B) of the Code) will not be an activity of 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) Biovest, along with Biovax, will operate consistently with the Asset Purchase
Agreement between Biovest and Biovax, and will not amend such agreement without prior written consent of Telesis CDE II, LLC. An example of an event that would not cause a recapture is changes in the Internal Revenue Code that results in such
recapture. The total indemnification amount could be $4.7 million (representing 39% of the $12.0 million qualified investment). However, in accordance with Financial Interpretation 45 Guarantors Accounting and Disclosure Requirements for
Guarantees, including Indirect Guarantees of the Indebtedness of Others, the conditions and events that could result in recapture are within the control of Biovax. Therefore, this potential liability is not reflected in the consolidated financial
statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We, along with Biovest and certain member of our board of directors and Biovests board of directors, entered into a guarantee arrangement with
the CDE for the debt service of Biovax. Biovest has guaranteed 100% of the debt service while our directors and Biovests directors have guaranteed up to $6.0 million of the debt service. In addition, we have 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 Biovax and involved in structuring this transaction were recorded as a reduction to
additional paid-in capital. Various legal and accounting fees of $170,000 paid by entities in which 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 our consolidated balance sheet. Professional fees of $360,000 involved in the continuing management of this transaction were recorded as a prepaid expense and will be amortized over a period of seven and
one half years, representing the duration of both convertible notes issued by the Fund and Biovax.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



51



---

##### Table of Contents

On December 8,
20068, Biovests wholly-owned subsidiary, AutovaxID, Inc. (AutovaxID) closed a second NMTC financing transaction (Transaction II). The following parties were
involved in Transaction II: AutovaxID, our Company, Biolender II, LLC (Biolender II), St. Louis New Market Tax Credit Fund II, LLC (CDE II), St. Louis Development Corp., AutovaxID Investment LLC (Fund II),
U.S. Bancorp, and Laurus.

On December 8, 2006, we 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, and is convertible, at our option, to shares of Biovest common stock at a conversion price of $0.32 per share. Upon closing of
Transaction II, Biovest repaid us $1.1 million. The remaining $2.0 million of principal and all accrued and unpaid interest is included in notes payable, related parties in the accompanying September 30, 2008 consolidated balance sheet,
and is due upon 30 days advance written notice by us.

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

In contemplation of Transaction II, Fund II was established. U.S. Bancorp invested $2.4 million for a 100% equity
interest in Fund II. Additionally, Biolender II and Fund II entered into a Loan and Security Agreement pursuant to which Biolender II made a loan to Fund II in the principal amount of $5.6 million (the Leverage Loan), evidenced by a
promissory note dated December 8, 2006 payable from Fund II to Biolender II (the Leverage Note). The Leverage Note becomes due on June 9, 2014, and bears an interest rate of 8.0%, non-compounding. Payment of interest is due
annually on the first calendar day of each year through maturity. The outstanding principal amount on the Leverage Loan and any unpaid interest is due on maturity in cash.

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

CDE II is a Community Development Entity (CDE) that is certified through the U.S. Treasury Department to make QLICI, and is managed and
partially owned (0.01%) by St. Louis Development Corporation, a not-for-profit corporation organized in Missouri. St. Louis Development Corporation paid $1,000 in consideration for its 0.01% interest in CDE II. CDE II, upon receipt of its equity
funding, contemporaneously issued a QLICI to AutovaxID, evidenced by a $7.7 million subordinated promissory note dated as of December 8, 2006 which matures on December 8, 2036. Pursuant to a call right, for a period of six months
starting on December 8, 2013, the CDE will have the right to call for the repayment of the CDE II Loan in the amount of $5.7 million, in full satisfaction of the principal on the CDE II Loan. Interest on the outstanding principal amount of the
CDE II Loan accrues at the rate of 5.82% per annum, non-compounding and is payable in arrears on an annual basis having commenced on January 2, 2007 and continuing until maturity. The CDE II Loan is guaranteed in full by Biovest and also
guaranteed up to an amount of $4.5 million by our officers and directors. Biovest issued warrants to purchase 2.6 million shares of common stock to these officers and directors as compensation for their guarantees. The guarantees were treated
in a manner similar to contributed service and their fair value of $1.4 million was charged to expense upon issuance. 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.

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



|8 | In July 2010, Biovest and certain of its affiliates entered into an agreement (the St. Louis Restructuring Agreement) with St. Louis Development
Corporation and Saint Louis New Markets Tax Credit Fund II, LLC (collectively SLDC), contingent upon submission to and approval by the Bankruptcy Court. The St. Louis Restructuring Agreement effectively terminates all agreements and
obligations of all parties pursuant to Transaction II, in consideration of retention by SLDC of an unsecured claim in Biovests Chapter 11 proceeding in the amount of $160,000 along with a settlement payment in the amount of $62,000, to defray
certain legal and administrative expenses incurred by SLDC. Upon approval by the Bankruptcy Court, our Guaranty, Biovests and all of its subsidiary Guaranties from affiliates and third parties and all other obligations to all parties to
Transaction II will be terminated.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



52



---

##### Table of Contents

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

Biolender II and U.S. Bancorp entered into a put option wherein U.S. Bancorp
will have the right to put its investment in Fund II to us near the maturity of the instruments at a price of $0.12 million. Management has concluded that the fair value of U.S. Bancorps investment in Fund II at maturity of both notes
(approximately $0.1 million) would be less than the $0.12 million U.S. Bancorp would receive upon exercise of the put option and thus it is managements expectation that this option will be exercised. Thus, prior to maturity of both notes,
it is anticipated that the Fund will be 100% owned by Biolender II. 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 ($0.12 million) at the present value of its cash flows, using market interest rates that would likely be considered by market participants trading similar
instruments.

Salient terms and conditions of Transaction II are as follows:



| |  |  | Under a License and Asset Purchase Agreement dated as of December 8, 2006, Biovest granted a 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 us $5.6 million. Biovest also agreed to sell AutovaxID certain equipment upon the
occupancy by AutovaxID of the New Plant for the fair market value of $0.5 million.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



53



---

##### Table of Contents

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



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



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

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



54



---

##### Table of Contents

Loans from Pulaski Bank. On January 16, 2007, Biovest closed an amended and restated loan
transaction with Pulaski Bank, which amended the Loan Agreement dated September 5, 2006, pursuant to which Pulaski Bank agreed to loan $1.0 million pursuant to an unsecured Promissory Note. Biovest also closed on a second loan transaction with
Pulaski Bank on March 22, 2007, pursuant to which Pulaski Bank agreed to loan an additional $0.75 million pursuant to a second unsecured promissory note.

Both notes, through a series of modification agreements have had their maturity dates extended to March 31, 2009. The notes can be prepaid at any
time without penalty, bear interest at the prime rate (5.0% per annum at September 30, 2008) and are unsecured obligations, subordinated to Biovests outstanding loans to Laurus and the Valens Funds. Biovest issued Pulaski Bank 550,000
shares of Biovests common stock as well as warrants to purchase an additional 354,167 shares of its common stock at $1.10 per share in connection with the origination and modifications of these notes.

The promissory notes are guaranteed by entities and individuals affiliated with us or Biovest. Biovest issued to the guarantors warrants to purchase an
aggregate total of 3,632,913 shares of Biovest common stock, par value $0.01 per share, at an exercise price of $0.32 per share. Biovest has agreed to indemnify and hold harmless each guarantor should their guarantees be called by Pulaski Bank.
In the event of default, resulting in a payment to Pulaski Bank by the guarantors, Biovest has agreed to compensate each affected guarantor by issuance of that number of shares of Biovest restricted common stock determined by dividing 700% of the
amount guaranteed by $1.10. On December 29, 2008, Pulaski Bank called the guarantees resulting in an aggregate payment of $1.0 million by the guarantors. Therefore, as a result of their indemnification agreements, the guarantors are allowed an
unsecured claim for the value of approximately 6.4 million shares of Biovest common stock.

As a result of the November 10, 2008,
Chapter 11 filings by Biovest, all actions to enforce or otherwise effect Biovests obligations and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy law.

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 The
Hopkins Capital Group II, LLC (Hopkins II). Hopkins IIs manager is Francis E. ODonnell, Jr., our Chairman and CEO and several of our stockholders are also members of Hopkins II. 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 Hopkins II under this loan.

In
August 2005, we consolidated these borrowings into a new bridge loan agreement with Hopkins II that provided us 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 Hopkins II 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
Line of Credit with Hopkins II, we borrowed $1.7 million as of September 30, 2007 and subsequent to this date has made payments to Hopkins II of $0.7 million. As of December 27, 2007, we have the right to borrow up to $6.5 million in the
aggregate upon ten days prior written notice to Hopkins II. 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. The 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, maturity date of the loan. The Line of Credit is subordinate to the Laurus credit facility and to the McKesson Corporation (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, Hopkins II
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. Giving effect to this conversion, the outstanding balance on
September 30, 2007 was $1.7 million. In January 2008, the Line of Credit was paid in full.



55



---

##### Table of Contents

McKesson Corporation. On June 17, 2008, we entered into an Amendment No. 1 to Termination
Agreement Re Biologics Distribution Agreement (the Termination Amendment) with McKesson. The Termination Amendment provides that the Put option in the existing agreement, which allows McKesson to put shares of our
common stock back to us on August 22, 2008 in the event that McKesson has not realized a defined minimum return on sale of those shares, is replaced by a mandatory redemption by us, upon request by McKesson, in the initial month of up to
74,907 shares at $2.67 per share ($200,001.69 for the first month), then up to 40,000 shares per month at $2.67 per share ($106,800 per month) for the second through twelfth month; after 12 months the amount of mandatory monthly
redemption which may be requested by McKesson shall increase from 40,000 shares to up to 80,000 shares being redeemed. Also, pursuant to the Termination Amendment, McKesson has released its security interest in all our assets. We agreed to
pledge to McKesson a number of shares of Company-owned common stock of Biovest with a market value equal to twice the remaining amount due to McKesson less the market value of our common stock held by McKesson, with the requirement that
the number of pledged Biovest shares be subject to quarterly adjustment so at all times McKesson is secured with Biovest shares on a 2X basis based on the difference between the remaining amount owed and the market value of
McKesson-owned our Company common stock. As a result of the November 10, 2008, our Chapter 11 filings, all actions to enforce or otherwise effect our obligations and payments under any debt facility were automatically stayed pursuant to
provisions of federal bankruptcy law.

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 Bank of St. Louis f/k/a Missouri State Bank and Trust Company (Southwest Bank). In March 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 some of our shareholders and affiliates. As of March 31, 2009, all of the $4.0 million credit facility
had been drawn and was outstanding.

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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On June 16, 2008, we entered into an Amendment to
Revolving Credit Agreement (the SWB Amendment) regarding our credit facility with Southwest Bank. Pursuant to the SWB Amendment, the total amount of the revolving debt will increase to $4.085 million, and Southwest Bank has agreed
to extend the maturity date of the Revolving Credit Agreement through July 15, 2008. Southwest Bank has agreed to release all of its security interest in our assets previously subject to its existing subordinated Security Agreement, with the
exception of a first lien in the inventory and accounts receivable of our subsidiary, TEAMM. We also entered into a Stock Pledge Agreement with Southwest Bank whereby we agreed to pledge to Southwest Bank 15.0 million shares of our
Company-owned common stock in Biovest. In connection with the restructure of the Southwest Bank credit facility, all existing guarantors have executed a Reaffirmation Agreement to affirm that these guarantees continue with respect to the
restructured debt to Southwest Bank. As a result of the November 10, 2008, Chapter 11 filings by our subsidiaries and us, all actions to enforce or otherwise effect our obligations and payments under any debt facility were automatically
stayed pursuant to provisions of federal bankruptcy law.

Private Placement of Convertible Debentures

September 2006 Private Placement

On September 29, 2006, we entered into definitive agreements relating to a private placement (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). The September 2006 Private Placement resulted in gross proceeds of $23.5 million after placement agent
fees of $1.5 million but before other expenses associated with the transaction. To secure certain amounts payable by us to Laurus, our senior lender, a total of $7.3 million of the proceeds from the September 2006 Private Placement were placed into
an escrow account and paid to Laurus when certain amounts become due under our credit facility with Laurus.



56



---

##### Table of Contents

The September 2006 Debentures were 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. In the event that we issue or grant in the future any rights to purchase any of our common stock, or other security convertible into our common
stock, for an effective per share price less than the conversion price then in effect, the conversion price of all unconverted September 2006 Debentures will be decreased to equal such lower price. The September 2006 Debentures are also exchangeable
for shares of common stock of Biovest held by us at an exchange price of $1.00 per share, subject to adjustment for stock splits, stock dividends, and the like, at any time after the earlier to occur of (i) September 29, 2007 or
(ii) such time as the closing price of Biovests common stock exceeds $2.25 for each of 20 consecutive trading days, subject to certain volume requirements and other conditions. In the event that Biovest issues or grants in the future any
rights to purchase any of Biovests common stock, or other security convertible into Biovests common stock, for a per share price less than the exchange price then in effect, the exchange price for all unconverted September 2006
Debentures will be decreased to equal such lower price. The above-described adjustments to the conversion price or exchange price for future stock issuances by us or Biovest will not apply to certain exempt issuances, including stock issuances
pursuant to employee stock option plans and strategic transactions. On June 17, 2008, pursuant to a private placement transaction, the issued September 2006 Private Placement conversion price was reset to $1.25 per share for certain September
2006 Private Placement holders. On September 23, 2008, pursuant to a Biovest private placement transaction, the issued September 2006 Private Placement (Biovest) exchange price was reset to $0.32 per share for certain September 2006 Private
Placement holders.

Prior to maturity the September 2006 Debentures will bear interest at 8% per annum with interest payable quarterly in
arrears in cash, or, at our option, in shares of our common stock. We informed the holders of the September 2006 Debentures that we will pay interest with shares of our common stock because of our satisfaction of certain specified conditions,
specifically that there is an effective registration statement (dated November 17, 2006) covering the resale of the shares issued in payment of interest and certain minimum trading volumes in the stock to be issued. Shares delivered in payment
of interest were valued at 90% of the average of the daily volume weighted average price of the shares for the 20 trading days prior to the interest payment date.

On October 1, 2007, and on the
1stof each month thereafter, we redeemed
1/37thof the face value of the September 2006 Debentures in shares of our common stock. Any unconverted September 2006 Debentures will become due on September 29, 2010.

In the event that the average of the daily volume weighted average price of the shares of our common stock for any 20 consecutive trading days exceeds
$6.50, we have the right, but not the obligation, to require the holders of the September 2006 Debentures to convert into our common stock at the conversion price then in effect up to 50% of any outstanding September 2006 Debentures (or 100% of any
outstanding September 2006 Debentures, in the event that the average of the daily volume weighted average price of the shares of our common stock for any 20 consecutive trading days exceeds 300% of the then-effective conversion price). Such a
mandatory conversion is subject to specified conditions.

On November 17, 2007, we may redeem, subject to specified conditions and upon
20 trading days written notice, any or all of the outstanding September 2006 Debentures for a redemption price of (i) cash of 120% of par plus accrued and unpaid interest on the September 2006 Debentures to be redeemed and
(ii) warrants to subscribe for a number of shares of our common stock equal to the principal amount of the September 2006 Debentures to be redeemed, divided by the conversion price then in effect. Such warrants will have an exercise price equal
to the average of the daily volume weighted average price for the shares of our common stock for the 20 trading day period immediately preceding the redemption and a term equal to the weighted average remaining term of the September 2006 Debentures.
No redemptions have been made.

As a part of the September 2006 Private Placement, 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 warrants may not be exercised for any shares of Biovest common stock until the earlier to occur of (i) September 29, 2007 or (ii) such time as the closing price of Biovests common
stock exceeds $2.25 for each of 20 consecutive trading days, subject to certain volume requirements and adjustments. The warrant exercise prices are subject to the same adjustments to the exercise price as stated above. On June 17, 2008,
pursuant to a private placement transaction, the issued September 2006 Private Placement exercise price was reset to $1.50 per share for certain September 2006 Private Placement holders. On September 23, 2008, pursuant to a Biovest private
placement transaction, the issued September 2006 Private Placement (Biovest) exercise price was reset to $0.32 per share for certain September 2006 Private Placement holders. In connection with the September 2006 Private Placement, we also issued to
the placement agent for the transaction warrants to purchase an aggregate of 545,455 shares of our common stock at an exercise price of $2.75 per share. All of the warrants issued in connection with the September 2006 Debentures (including the
warrants granted to the placement agent) will expire on September 29, 2011.



57



---

##### Table of Contents

In addition, the total number of shares of Biovest common stock held by us that may be transferred to the
investors in the September 2006 Private Placement pursuant to the September 2006 Debentures or associated warrants may not exceed 18.0 million shares in the aggregate. Pursuant to a Pledge Agreement among us and all of the purchasers of the
September 2006 Debentures, the September 2006 Debentures are also secured by these 18.0 million shares of Biovest common stock held by us.

As a result of the November 10, 2008, Chapter 11 filings by our subsidiaries and us, all actions to enforce or otherwise effect our obligations
and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy law.

February 2007 Private
Placement

On February 27, 2007, we entered into definitive agreements relating to a private placement (the February 2007
Private Placement) of $24.7 million in principal amount of 8% Secured Convertible Debentures due four years from the date of issuance (the February 2007 Debentures). The closing of the February 2007 Private Placement took place on
February 28, 2007. The February 2007 Debentures were issued pursuant to a Securities Purchase Agreement, dated February 27, 2007, among our company and the purchasers of the February 2007 Debentures. The February 2007 Private Placement
resulted in gross proceeds of $20.0 million before placement agent fees and other expenses associated with the transaction.

In connection
with the February 2007 Private Placement, certain holders of September 2006 Debentures agreed to purchase February 2007 Debentures in the February 2007 Private Placement, and such holders agreed to convert an aggregate of $13.0 million in
principal amount of the September 2006 Debentures over a six-month period following February 28, 2007 in accordance with the terms of the September 2006 Debentures, in exchange for which we issued to such holders a February 2007 Debenture with
a principal amount equal to such purchasers investment amount in the February 2007 Private Placement multiplied by 1.38 (resulting in an original issue discount of an aggregate of $4.7 million in principal amount).

The February 2007 Debentures were convertible at any time at the option of the holder into shares of our common stock at an initial price of $4.00 per
share, subject to adjustment for stock splits, stock dividends, and the like. In the event that the volume weighted average trading price of our common stock during the ten (10) trading days immediately prior to May 14, 2007 is less than
the then-effective conversion price, then the conversion price then in effect is automatically reduced to such lower price (the Reset Price). The Reset Price was calculated at $2.67 per share. Also, in the event that we issue or grant in
the future any rights to purchase any of our common stock, or other security convertible into our common stock, for an effective per share price less than the conversion price then in effect, the conversion price of all unconverted February 2007
Debentures will be decreased to equal such lower price. On June 17, 2008, pursuant to a private placement transaction, the issued February 2007 Private Placement conversion price was reset to $1.25 per share for certain February 2007 Private
Placement holders.

Prior to maturity, the February 2007 Debentures will bear interest at 8% per annum with interest payable quarterly in
arrears in cash, or, at our option, in shares of our common stock. We informed the holders of the February 2007 Debentures that we would pay interest with shares of our common stock because of our satisfaction of certain specified conditions,
specifically the existence of an effective registration statement (dated July 17, 2007) covering the resale of the shares issued in payment of interest and certain minimum trading volumes in the stock to be issued. Shares delivered in payment
of interest were valued at 90% of the average of the daily volume weighted average price of the shares for the 20 trading days prior to the interest payment date. All overdue accrued and unpaid interest and principal will bear default interest at a
rate of 18% per annum.

On March 1, 2008, and on the
1stof each month thereafter, through November 2008, we
redeemed 1/37thof the face value of the February 2007
Debentures in cash or with shares of our common stock. Our ability to pay redemption payments with shares of our common stock will be subject to specified conditions, No payment in common stock made by our company may exceed 15% of the total dollar
traded volume in the applicable stock for the 20 trading days prior to the redemption payment. Any of our common stock delivered in satisfaction of an amortization payment will be valued at the lesser of (i) the conversion price or the exchange
price, as the case may be, in effect at the time of the amortization payment or (ii) 90% of the average of the daily volume weighted average price of the applicable shares for the 20 trading days prior to the amortization payment. Any
unconverted February 2007 Debentures will become due on the fourth anniversary of the issue date of the February 2007 Debentures.



58



---

##### Table of Contents

In the event that the average of the daily volume weighted average price of the shares of our common stock
for any 20 consecutive trading days exceeds $10.00, we have the right, but not the obligation, to require the holders of the February 2007 Debentures to convert into our common stock at the conversion price then in effect up to 50% of any
outstanding February 2007 Debentures (or 100% of any outstanding February 2007 Debentures, in the event that the average of the daily volume weighted average price of the shares of our common stock for any 20 consecutive trading days exceeds $12 per
share). Such a mandatory conversion is subject to specified conditions.

On or after July 17, 2008, we may redeem, subject to specified
conditions and upon 20 trading days written notice, any or all of the outstanding February 2007 Debentures for a redemption price of (i) cash of 120% of par plus accrued and unpaid interest on the February 2007 Debentures to be redeemed
and (ii) warrants to subscribe for a number of shares of our common stock equal to the principal amount of the February 2007 Debentures to be redeemed, divided by the conversion price then in effect. Such warrants will have an exercise price
equal to the average of the daily volume weighted average price for the shares of our common stock for the 20 trading day period immediately preceding the redemption and a term equal to the weighted average remaining term of the February 2007
Debentures.

As a part of the February 2007 Private Placement, we issued warrants to the purchasers of the February 2007 Debentures, which
were immediately exercisable, 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 $4.25 per share (the Long Term Warrants) and an aggregate of
3.1 million shares of our common stock at an exercise price of $4.00 per share (the Short Term Warrants and, together with the Long Term Warrants, the February 2007 Warrants). As a result of reset provisions contained in
such warrants similar to the reset provisions in the February 2007 Debentures. On June 17, 2008, pursuant to a private placement transaction, the issued February 2007 Private Placement exercise price was reset to $1.50 per share for certain
February 2007 Private Placement holders. All of the Short Term Warrants expired on October 19, 2007. All of the Long Term Warrants will expire on February 28, 2012. In connection with the February 2007 Private Placement, we also issued to
the placement agents for the transaction warrants to purchase an aggregate of 405,918 shares of our common stock at an exercise price of $4.00 per share.

As a result of the November 10, 2008, Chapter 11 filings by our subsidiaries and us, all actions to enforce or otherwise effect our obligations
and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy law.

January 2008
Convertible Preferred Stock

On January 18, 2008, we 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, we also issued to the Placement Agent warrants to purchase an aggregate of 163,464 shares of our
common stock at an exercise price of $2.67 per share.

The Preferred Stock was convertible at any time at the option of the holder into
shares of our common stock at $2.67 per share, subject to adjustment for stock splits, stock dividends, and the like. In the event that we issue or grant in the future any rights to purchase shares of our common stock, or other security convertible
into our common stock, for an effective per share price less than the conversion price then in effect, the conversion price of all unconverted Preferred Stock would decrease 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. On June 17, 2008, pursuant to a private placement transaction,
the issued Preferred Stocks conversion price was reset without further anti-dilution protection to $1.25 per share for certain January 2008 Private Placement holders who participated in the June 17, 2008 transaction.



59



---

##### Table of Contents

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. We have the right to force the conversion of the Preferred Stock into shares of our common stock if our
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, we had 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 our Company, whether voluntary or involuntary, the holders shall be entitled to receive out of our assets, whether capital or surplus, 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 our assets 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, we 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 our common stock at an exercise price of $2.67 per share. These Short-Term Warrants expired April 23, 2008. We also 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 our common stock at an exercise price of $2.67 per share. The Long-Term Warrants will expire on January 17, 2014. On
June 17, 2008, pursuant to a private placement transaction, the issued Warrants exercise price was reset without further anti-dilution protection to $1.50 per share for certain January 2008 Private Placement holders who participated in
the June 17, 2008 transaction. In the event that any proceeds are realized by we 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 include:



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



| |  |  | Triggering events that would cause mandatory conversions include the effectiveness of the April 17, 2008, 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;
we shall fail to deliver certificates representing conversion shares issuable upon a conversion; or we 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, we 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 our junior securities.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



60



---

##### Table of Contents

On June 23, 2008, we offered to each January 2008 Private Placement holder that executed and delivered
an Acceptance, the right to have all of the shares of Preferred Stock held by such holder be redeemed (Accepting Preferred Stockholder) with the following redemption terms:

July 15, 2008 and on the
15thday of each month thereafter (each such date, a
Monthly Preferred Redemption Date), we shall redeem a number of shares of Preferred Stock held by such Accepting Preferred Stockholder equal to the aggregate number of shares of Preferred Stock held by such Accepting Preferred
Stockholder divided by 32, with all shares of Preferred Stock held by such Accepting Preferred Stock Holder being redeemed on or before March 15, 2011, provided, however, any fractional share of Preferred Stock required to be redeemed hereunder
shall be rounded up to the next full share of Preferred Stock (the shares of Preferred Stock being redeemed on each Monthly Preferred Redemption Date, the Redeemed Preferred Stock). We shall redeem the Redeemed Preferred Stock by issuing
to each Accepting Preferred Stockholder a stock certificate representing that number of shares of common stock determined by multiplying the stated value by the number of shares of Redeemed Preferred Stock and then dividing the total by a number
equal to ninety percent (90%) of the volume weighted average price (VWAP) for the 20 calendar days prior to each Monthly Preferred Redemption Date (such number of shares of common stock, the Redemption Consideration),
provided, however, that any fractional share of common stock shall be rounded up to the next full share of common stock. The shares of Redeemed Preferred Stock shall be automatically cancelled upon payment by us of the Redemption Consideration. An
Accepting Preferred Stockholder may, at any time, in its sole and absolute discretion, elect to discontinue the redemption of its Preferred Stock.

Holders representing approximately 94% of the initial $8.7 million investment accepted the redemption offer. As a result of the nature of the Redemption
Considerations previously discussed (variable number of common shares dependent upon our stock price), we cannot conclude that we have adequate authorized shares to settle this or other instruments, which are indexed to our common stock that were
previously recorded in equity. As such, we reclassified approximately $11.9 million from stockholders equity to derivative liabilities and approximately $0.2 million from stockholders equity to capitalized finance costs, which is the
fair value of three instruments recorded in equity. Of this reclassification, approximately $3.9 million related to the embedded conversion feature of the January 2008 Private Placement, approximately $4.2 million related to the embedded conversion
feature of the February 2007 Debenture (originally reclassified to stockholders equity at the reset of the conversion price in May 2007), approximately $1.4 million related to the detachable warrants issued with the February 2007 Debenture,
and approximately $2.3 million related to other warrants that were previously issued in separate transactions. The fair market value of these instruments was calculated on June 23, 2008 and reclassified from stockholders equity to
derivative liabilities.

As a result of the November 10, 2008, Chapter 11 filings by our subsidiaries and us, all actions to enforce
or otherwise effect our obligations and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy law.

June 2008 Private Placement

On
June 17, 2008, we issued $8.8 million in principal amount of 8% Original Issue Discount Secured Convertible Debentures, maturing on June 17, 2011 (the June 2008 Secured Debentures).

The June 2008 Secured Debentures were issued at an 8% original issue discount with monthly interest commencing one year from closing and bearing interest
at an annual rate of 8%. After transaction costs, fees and the 8% original issue discount, our net proceeds were estimated to be $7.5 million.

The June 2008 Secured Debentures were convertible into our common stock at $1.10 per share (the Conversion Price) and, provided certain
conditions are satisfied, we may, at its option, redeem the June 2008 Secured Debentures for an amount equal to 110% of the then outstanding principal. On January 1, 2009, the June 2008 Secured Debentures were amortized through thirty equal
monthly payments. All principal amortization payments and monthly interest payments will be made in cash or we may elect to make the payments in shares of its common stock. Our ability to pay interest with shares of our common stock was subject to
specified conditions, including the existence of an effective registration statement (satisfied as of September 24, 2008) covering the resale of the shares issued in payment of redemption amount, or that the shares may be resold pursuant to
Rule 144 without volume or manner-of-sale restrictions or current public information requirements. Any payment in common stock may not exceed 15% of the total dollar traded volume in the applicable stock for the 20 days trading days prior to the
amortization payment. Any common stock delivered in satisfaction of an amortization payment will be valued at the lesser of (i) the conversion price or the exchange price, as the case may be, in effect at the time of the amortization payment or
(ii) 90% of the average of the daily volume weighted average price of the shares for the 20 trading days prior to the amortization payment date.



61



---

##### Table of Contents

As a part of the June 2008 Secured Debentures, we issued Warrants to the purchasers of the June 2008 Secured
Debentures giving them the right to purchase 2,943,131 shares of our common stock at an exercise price of $1.21 per share. The warrant exercise prices are subject to adjustment for stock splits, stock dividends, and the like. In connection with the
June 2008 Secured Debentures, we also issued to the placement agent for the transaction warrants to purchase 367,892 shares of our common stock at an exercise price of $1.21 per share. All of the Warrants (including the warrants granted to the
Placement Agent) will expire on June 17, 2014.

As a part of the June 2008 Secured Debentures, we entered into agreements with purchasers
who are also investors in our private placements dated September 29, 2006, February 28, 2007, and January 18, 2008 (the Prior Financings), whereby the conversion price of any 8% Convertible Debenture and/or Preferred
Series A-1 stock was adjusted to $1.25 per share. The exercise price of any warrant issued to any such Purchaser in any Prior Financings was adjusted to $1.50 per share. Also, we entered into a Security Agreement with the purchasers of the June 2008
Secured Debentures, under which the obligations pursuant to the Debentures and other transaction documents are secured by a first lien in our SinuNase and Revimmune products, including intellectual property.

As a result of the November 10, 2008, Chapter 11 filings by our subsidiaries and us, all actions to enforce or otherwise effect our obligations
and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy law.

Credit Facilities with
the Valens Funds

On October 30, 2007, Biovest completed a financing transaction with the Valens Funds, an affiliate of Laurus.
Pursuant to this transaction, the Valens Funds purchased from Biovest two secured promissory notes in the aggregate principal amount of $0.5 million 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.

Effective as of May 30, 2008,
Biovest entered into an agreement with Laurus and the Valens Funds whereby the Valens Funds agreed to extend the maturity date of their Secured Promissory Notes from Biovest dated December 10, 2007 (the Notes) from their initial
maturity date of June 10, 2008 to October 31, 2008 (the Extension). In consideration for the Extension, Biovest entered into an amendment to the existing royalty agreements with the Valens Funds (the Royalty
Amendment) whereby the royalty percentage due to the Valens Funds on sales of Biovests biologic products including BiovaxID was increased from 9.0% to 15.5% (the Royalty Percentage). In connection with the closing of the
Amendment Agreement, Accentia executed a Guaranty Side Letter with Laurus confirming that the portion of Biovests existing indebtedness to Laurus which is guaranteed by us shall be changed from 64% of all presently due and outstanding debts
and liabilities of Biovest to a fixed principal amount of $5.0 million together with all other obligations covered by and as defined under the Guaranty between us and Laurus dated March 31, 2006. Subsequent to June 30, 2008, Biovests
debt to the Valens Funds has been amended and the maturity dates of the secured promissory notes to the Valens Funds have been extended through July 31, 2009, and will carry no amortizing payments until maturity. Interest on all principal
outstanding was amended to 30% per annum, with 10% payable monthly and 20% accruing and payable at maturity. Biovest also agreed to pay an additional $4.4 million fee on the notes, payable at maturity.

On September 22, 2008, as part of Biovests Secured Convertible Debenture transaction described herein, Biovest issued to Valens U.S. SPV
I, LLC a secured convertible debenture in the principal amount of $0.65 million. The debentures accrue interest at 15% per annum, payable monthly, in cash, or at Biovests option, in shares of Biovest common stock. The debentures are
secured by all of Biovests assets and are subordinate to the existing notes outstanding to Laurus and the Valens Funds.

As a result of
the November 10, 2008, Chapter 11 filings by Biovest, all actions to enforce or otherwise effect our obligations and payments under any debt facility were automatically stayed pursuant to provisions of federal bankruptcy law.



62



---

##### Table of Contents

Cash Flows for the Six Months Ended March 31, 2009

For the six months ended March 31, 2009, we used approximately $1.0 million in cash to fund our operating activities. The use for operating
activities included a net income of $1.7 million, a decrease in inventory of $0.6 million, an increase in accrued expenses of $4.3 million, an increase in accounts payable of $1.2 million, and a net change in unbilled revenues and unearned revenue
of $0.1 million.

We had no net cash outflow from investing activities for the six months ended March 31, 2009.

We had net cash flows from financing activities of $0.9 million for the six months ended March 31, 2009. Proceeds from notes payable, related party
were $1.0 million.



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

Not Applicable.



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

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

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

PART II. OTHER INFORMATION



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

Bankruptcy
proceedings:

On November 10, 2008, we and all of our subsidiaries filed a voluntary petition for reorganization under Chapter 11 in
the United States Bankruptcy Court for the Middle District of Florida, Tampa Division (Bankruptcy Court). During the pendency of the Chapter 11 proceedings, we will operate our business as a debtor-in-possession in accordance with the
provisions of Chapter 11, and will be subject to the jurisdiction of the Bankruptcy Court. All pending or threatened litigation or claims involving us were automatically stayed as a result of this Chapter 11 filing, and all such claims may be
subject to compromise or modification through the terms of any Plan of Reorganization filed by us in the Chapter 11 proceedings.

Biovest
litigation:

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



63



---

##### Table of Contents

Analytica litigation:

On December 2, 2005, our Analytica subsidiary commenced litigation in the Supreme Court of New York, New York County against a former employee,
alleging breach of covenants not to compete, breach of confidentiality agreements and misappropriation of proprietary information. The defendant has filed an Answer containing counterclaims alleging that he was owed contractual bonus and other
compensation and seeking damages for wrongful termination against Analytica, our Company and an officer of our Company. Both Analytica and the former employee sought injunctive relief and monetary damages from one another. We filed a motion seeking
to dismiss all claims naming us and our 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. We are pursuing our affirmative claims in this matter vigorously and have asserted all available defenses against the counterclaims, which we believe are without merit. Upon the filing of Analyticas and our Chapter 11
petition on November 10, 2008, this litigation was automatically stayed pursuant to provisions of federal bankruptcy law.

Other
proceedings:

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

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



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

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



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

None.



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

None.



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



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

Collegium
Compromise:

On April 28, 2009, the Bankruptcy Court entered an Order approving a compromise and settlement (the Collegium
Settlement Agreement) between the Company and Collegium Pharmaceuticals, Inc. (Collegium). The Bankruptcy Courts Order confirmed the rejection of the pre-petition Licensing and Distribution Agreement, dated November 22,
2005 (License Agreement), executed by us, TEAMM and Collegium. The Collegium Settlement Agreement provides that:



| | (a) | Collegium shall pay to us $0.1 million and Collegium shall be free to use, license, sell, offer to sell, import, make, have made or otherwise exploit any and all
intellectual property rights and other assets of Collegium, which may be or which may have been subject at any time to the terms of the License Agreement, free from any of our claim, right, title or interest.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Our sole remedy against Collegium shall be the right to seek any monetary damages from Collegium available under applicable law or equitable principles (and expressly
not against any licensees, transferees or purchasers of any intellectual property rights or other assets granted to us under the License Agreement), including, but not limited to, claims arising out of or relating to Collegiums conduct
relating to or under the License Agreement, alleged breach of the License Agreement, alleged negligence in connection with or related to the License Agreement and alleged misrepresentations, which claims are specifically preserved without limitation
(hereafter, the Excluded Claims).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



64



---

##### Table of Contents

| | (c) | Collegium shall retain all defenses available under applicable law including, but not limited to, the defenses of termination, setoff and recoupment, all of which
defenses are specifically preserved (the Excluded Defenses); provided, however, that Collegium waives all rights to receive any affirmative recovery of money from us or our respective bankruptcy estates of any nature whatsoever on
account of any rights, claims or defenses, including, but not limited to, any claim for milestone payments allegedly owed by us under the License Agreement or any claims against any of us or our bankruptcy estates in our Chapter 11 proceedings
(including, but not limited to, any administrative expense or other priority claim, any claim for rejection damages, any claims arising prior to the Petition Date, or any claims scheduled by us). In addition, Collegiums payment to us of $0.1
million shall be credited to any recovery, if any, by us on the Excluded Claims, thereby reducing any such recovery against Collegium by $0.1 million.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Engagement and termination of Leases:

On May 7, 2009, the Bankruptcy Court entered an Order confirming the entry into a new Sub-lease, dated March 31, 2009, for
Analyticas replacement office space located at 24 West
40thStreet, New York, NY, consisting of approximately
4,000 square feet.

Effective on March 1, 2010, and pursuant to the authorization of the Bankruptcy Court, Analytica entered into a new
sub-lease for office space located at Meeraner Platz 1, 79539 Lorrach, Germany, to be occupied by Analyticas employees in Germany.

Analytica-Germany:

On December 1,
2009, Analytica separated the existing employees of its Analytica International GmbH subsidiary into two business units: (1) Outcomes Research and (2) Clinical Trials and Cardiac Research. Effective December 1, 2009, Analytica
International GmbH terminated its employment relationship with all employees in the Outcomes Research unit, and these employees were simultaneously hired by Analytica and integrated into Analyticas U.S. operations. The remaining employees in
the Clinical Trials and Cardiac Research unit remain employed by the Analytica International GmbH subsidiary.

On March 18, 2010,
Analytica International GmbH filed for insolvency under the provisions of the Insolvency Ordinance administered by the German Courts. Day to day business operations of Analytica International GmbH has ceased, and an Insolvency Receiver has
since been appointed by the German Court.

BDSI/Arius Settlement:

On February 17, 2010, the Bankruptcy Court entered an Order approving an Emezine Settlement Agreement (the Settlement Agreement)
between the Company and BioDelivery Sciences Inc. (BDSI), entered into as of December 30, 2009. Parties to the Settlement Agreement are the Company, our wholly-owned subsidiary, TEAMM, BDSI, and BDSIs wholly-owned subsidiary,
Arius Pharmaceuticals, Inc. (Arius).

The purpose of the Settlement Agreement is to memorialize the terms and conditions of a
settlement between us and BDSI of claims relating to a Distribution Agreement dated March 12, 2004 between Arius and TEAMM (the Distribution Agreement) related to the marketing and distribution of Emezine, a product licensed by
Arius from Reckitt Benckiser Healthcare (UK) Limited. Following the issuance in February 2006 by the FDA of a non-approvable letter with respect to the NDA for Emezine, BDSI ceased its Emezine related development efforts and on December 17,
2008, the Distribution Agreement was terminated. The Settlement Agreement resolves our claims against BDSI under the terminated Distribution Agreement.

The Settlement Agreement provides that the parties mutually release all claims that either may have against each other and, in connection therewith, we:



| | (a) | received $2.5 million from BDSI (the $2.5 Million Payment); and
| | --- | -----------------------------------------------------------------



65



---

##### Table of Contents

| | (b) | received the following royalty rights (the Product Rights) from BDSI with respect to BDSIs BEMA Granisetron product candidate (BEMA
Granisetron) (or in the event it is not BEMA Granisetron, the third BDSI product candidate, excluding BEMA Bupremorphine, as to which BDSI files an NDA, which, together with BEMA Granisetron, shall be referred to hereinafter as the
Product):
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | 70/30 split (BDSI/Company) of royalty received if a third party sells the Product and 85/15 split on net sales if BDSI sells the Product; and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | BDSI will, from the sale of the Product, fully recover amounts equal to (1) all internal and external worldwide development costs of the Product
(Costs) plus interest (measured on weighted average prime interest rate from first dollar spent until Product launch) and (2) the $2.5 Million Payment plus interest (measured on weighted average prime interest rate from the time of
payment until Product launch) before the Company begins to receive its split as described in (b) (i) above; and
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | issued to BDSI a warrant (Warrant) to purchase two (2) million shares of our majority-owned subsidiary, Biovest, from us, with an exercise price equal
to 120% of the closing bid price ($0.84) of Biovests common stock as of the date the Bankruptcy Court enters a final order authorizing us to carry out the Settlement Agreement (February 17, 2010), with the issuance of the Warrant to occur upon
receipt of the $2.5 Million Payment by us (March 4, 2010). The Warrant will be exercisable immediately and for a period of seven (7) years from the date of issuance. During the initial two (2) year exercise period, any exercise of the
Warrant by BDSI will be subject to approval by Biovest.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the event that BDSI receives any sublicensing or milestone payments
associated with the Product up to and including the NDA approval, BDSI will apply 30% of such payments toward payback of the Costs of the Product plus interest and the $2.5 Million Payment plus the interest.

On March 4, 2010, the $2.5 Million Payment was received by us. The transfer of Product Rights shall become effective only upon our exit from
Reorganization, defined as the effective date of our reorganization plan that is confirmed by the Bankruptcy Court. The transfer of Product Rights shall be deemed terminated in the event that we do not exit Reorganization on or before
December 31, 2010.

In the event of a proposed sale of BDSI or its assets, BDSI has the right to terminate its Product Right payment
obligations to us under the Settlement Agreement upon the payment to us of an amount equal to the greater of: (i) $4.5 million; or (ii) the fair market value of the Product Rights as determined by an independent third party appraiser.
Further, if the Product Right is terminated, the Warrant described above will be terminated if not already exercised, and, if exercised, an amount equal to the strike price will, in addition to the amount in (i) or (ii) above, be paid to
us.

Filing of Plan of Reorganization:

On May 28, 2010, we filed our Joint Plan of Reorganization and on July 12, 2010, we filed our Joint Disclosure Statement with the Bankruptcy
Court. On August 9, 2010, the Bankruptcy Court held a hearing on the Joint Disclosure Statement and scheduled a confirmation hearing on the Joint Plan of Reorganization for September 22, 2010.



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



66



---

##### Table of Contents

SIGNATURES

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



|                      |  |  |  |                                                               
|--------------------- |  |  |  | --------------------------------------------------------------
|                      |  |  |  | ACCENTIA BIOPHARMCEUTICALS, INC.
(Registrant)                 
|                      |  | 
|Date: August 16, 2010 |  |  |  | /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: August 16, 2010 |  |  |  | /s/ Alan M. Pearce                                            
|                      |  |  |  | Alan M. Pearce                                                
|                      |  |  |  | Chief Financial Officer; Director                             
|                      |  |  |  | (Principal Financial Officer and Principal Accounting Officer)



67