BIONOVO INC

If the Company is not successful in its efforts to obtain additional funding, it may be required to sell its laboratory and manufacturing equipment. The Company is exploring possible transactions for the sale of its equipment but has not yet entered into any such agreement. The Company expects that a transaction to sell its laboratory and manufacturing equipment would result in funds significantly below the book value of the assets recorded. As of March 31, 2012, the Company has not recorded an impairment charge to its laboratory and manufacturing equipment as the Company continues to actively pursue funding options that would allow it to use the laboratory and manufacturing equipment as intended.

Pursuant to the Plan, upon involuntary termination non-vested options are cancelled immediately. Vested options remain exercisable for 90 days following the involuntary termination. The 2.9 million options included under the heading “canceled or forfeited” in the table above include the cancellation of approximately 2.6 million unvested options due to the Company’s workforce reduction. An additional 0.7 million vested options will expire in June of 2012 if not exercised by the terminated employees within 90 days of termination. As of March 31, 2012, all applicable options had exercise prices substantially in excess of the market price and were not expected to be exercised.

^{Our lead drug candidate, Menerba™} (formerly MF-101), represents a new class of receptor sub-type selective estrogen receptor modulator (“SERM”), for the treatment of vasomotor symptoms of menopause, or “hot flashes.” We have designed Menerba to selectively modulate estrogen receptor beta (“ERß”) and we believe it could provide a safe and effective alternative to existing Food and Drug Administration (“FDA”) approved therapies that have been observed to pose a significant risk to women for developing breast cancer, stroke, cardiovascular disease, blood clots and other serious diseases. Hot flashes (or hot flushes) are a brief experience of body surface temperature irregularity resulting in fever like redness, sweating, prickly sensation that lasts from 4 to10 minutes. The experience may be accompanied by other symptoms such as anxiety, irritability, palpitations, blushing, panic, a sensation of loss of control, along with significant physical and emotional distress. Recently it has been suggested that women experiencing hot flashes are at higher risk for coronary heart disease, Type 2 diabetes, osteoporosis and early dementia, while at lower risk for breast cancer. Although not life threatening, hot flashes should be viewed as a marker of health decline and risk factor for aging diseases in women. In preclinical studies, Menerba does not lead to tumor formation in either breast or uterine tissues and it does not increase the risk for clotting. This characteristic, if confirmed in clinical testing, would differentiate Menerba from some existing therapies and other hormone-based therapies in clinical development. We announced the results in 2007 of our completed, multicenter, randomized, double-blinded, placebo-controlled Phase 2 trial, involving 217 women, which showed the higher of two Menerba doses tested was well tolerated and resulted in a statistically significant reduction of hot flashes after 12 weeks of treatment. In addition, treatment with the higher dose of Menerba led to a statistically significant reduction in night time awakenings when compared to placebo, which represents superior efficacy to existing non-hormonal therapies in development. In 2011 we announced the results of two tolerability studies with doses higher and similar to the higher dose in the Phase 2 study. In both studies significant reduction in hot flashes was observed as well as significant reduction in night time awakening. Following the FDA guidance and approval received, we are currently enrolling patients in a Phase 3, pivotal, clinical testing at multiple clinical sites in the U.S. We believe that Menerba’s novel mechanism of action could lead to a more favorable safety profile than currently approved hormone therapies (“HT”).

In the second quarter of 2012, we decided to abandon our facility in Emeryville, California and consolidate our operations at facility in Hayward, California. Although we have abandoned the Emeryville facility, the Company remains liable for the remaining duration of the lease. Accordingly, the full remaining balance of approximately $14.7 million is included in the table below under “Operating Lease Obligations.” The Company is currently negotiating with the lessor to modify the lease terms. The Company recorded approximately $982,000 of lease termination costs in the condensed consolidated financial statements as of March 31, 2012. Our contractual obligations and future minimum lease payments that are non-cancelable at March 31, 2012 are disclosed in the following table (in thousands).

Changes in internal controls: On March 9, 2012, we implemented a workforce reduction of approximately 90%. Although all accounting employees other than the CFO were terminated pursuant to the workforce reduction, we have retained the services of two of the terminated employees on a consulting basis to perform the quarterly accounting and reporting function. Due to the continuity of the staff and vigorous oversight of all expenditures by the CFO, we believe there were no significant changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. However with the departure of our CFO, effective April 30, 2012, it is possible that our internal controls over financial reporting may deteriorate. The Company will attempt to mitigate this through various measures.