The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of the Company’s management, all material adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain information and footnotes disclosure normally included in the financial statements prepared in accordance with generally accepted accounting principles in the U.S. (U.S. GAAP) have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the U.S. Securities and Exchange Commission (‘SEC’). However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in our Form 8-K/A filed on January 23, 2013.

For a more complete discussion of the Company’s significant accounting policies and other information, this report should be read in conjunction with the consolidated financial statements for the year ended June 30, 2012 included in the Company’s Form 8-K/A that was filed with the SEC on January 23, 2013.

The condensed consolidated financial statements include the financial statements of Biota Pharmaceuticals, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated on consolidation. The Company’s fiscal year ends on June 30.

The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, intangible assets, deferred income taxes, and obligations related to employee benefits. Actual results could differ from those estimates.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The Company adopted the provisions of ASU 2011-05 in the first quarter of 2012, and has presented a single statement of comprehensive income.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). This ASU is intended to result in convergence between U.S. GAAP and IFRS requirements for measurement of and disclosures about fair value. The guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. The Company adopted the provisions of ASU 2011-04 in the first quarter of 2012. Adoption of the new guidance did not have an impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, which amended the disclosure requirements regarding offsetting assets and liabilities of derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The enhanced disclosures will require entities to provide both net and gross information for these assets and liabilities. The amendment is effective for fiscal years beginning on or after January 1, 2013. The Company does not anticipate that this amendment will have a material impact on its consolidated financial statements.

Short-term investments constitute all highly liquid investments with term to maturity from three months to 12 months. The carrying amount of short-term investments is equivalent to its fair value. The Company did not have any short-term investments at December 31, 2012 and June 30, 2012.

Cash and accounts receivable consists of financial instruments that potentially subject the Company to concentration of credit risk to the extent of the amount recorded on the balance sheet. The Company’s cash is invested with several large commercial banks located in the U.S. and Australia. The Company is exposed to credit risk in the event of default by one or more of the banks holding its cash or cash equivalents. The Company’s investment policies and procedures are reviewed periodically by management and its audit committee to monitor credit risk.

The Company may use derivative financial instruments from time-to-time to hedge its exposure to foreign exchange arising from operating, investing and financing activities. The Company does not hold or issue derivative financial instruments for trading purposes; however, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Derivative financial instruments are recognized initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on re-measurement to fair value is recognized immediately in the consolidated statement of operations. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged.

Exposure to foreign exchange risks arises in the normal course of the Company’s business and it is the Company’s policy to hedge anticipated sales and purchases in foreign currencies. The amount of hedging activity used is in accordance with approved policy and internal forecasts.

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognized asset or liability, or a highly probable forecast transaction, the effective part of any unrealized gain or loss on the derivative financial instrument is recognized directly in stockholders’ equity. When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated cumulative gain or loss is removed from stockholders’ equity and included in the initial cost or other carrying amount of the non-financial asset or liability.

For cash flow hedges, other than those covered by the preceding statement, the associated cumulative gain or loss is removed from stockholders’ equity and recognized in the consolidated statement of operations in the same period or periods during which the hedged forecast transaction affects the consolidated statement of operations and on the same line item as that hedged forecast transaction. The ineffective part of any gain or loss is recognized immediately in the consolidated statement of operations.

When a hedging instrument expires or is sold, terminated or exercised, or the Company revokes designation of the hedge relationship but the hedged forecast transaction is still probable to occur, the cumulative gain or loss at that point remains in stockholders’ equity and is recognized in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, then the cumulative unrealized gain or loss recognized in stockholders’ equity is recognized immediately in the consolidated statements of operations.

Accounts receivable are recorded at the invoiced amount. An allowance for doubtful accounts is estimated based on probable credit losses in the existing accounts receivable. The allowance is determined based on a review of individual accounts for collectability, generally focusing on those that are past due. The current year expense to adjust the allowance for doubtful accounts, if any, is recorded in the consolidated statement of operations. An allowance for uncollectible accounts receivable is estimated based on a combination of default history, aging analysis and any specific, known troubled accounts. When a receivable is finally established as uncollectible, it is written off against the allowance account for accounts receivables.

Property and equipment are recorded at acquisition cost, net of accumulated depreciation and impairment. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful life of machinery and equipment is three to 10 years. Leasehold improvements are amortized on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Maintenance and repairs are charged to operations as incurred.

Royalty prepayments represent expenditures made to research institutions where the parties agreed to exchange future variable royalty payments in relation to intellectual property for a fixed payment. These prepayments have a finite useful life, usually being the expiration of the underlying patent or contract, and are carried at the present value of costs at acquisition date, less accumulated amortization. Amortization is based on the anticipated usage of the asset, determined with reference to expected sales of the related product over the contract or patent life.

Costs incurred in acquiring software and licenses that are expected to provide future period financial benefits are capitalized to computer software. Amortization is calculated on a straight-line basis over periods ranging from one to three years.

The Company accounts for its leases at their inception as either an operating or capital lease, depending on certain defined criteria. All of the Company’s leases in effect at December 31, 2012 and June 30, 2012 are considered operating leases. The costs of operating leases are charged to the consolidated statement of operations on a straight-line basis over the lease term. Additionally, any incentives we receive are treated as a reduction of our costs over the term of the agreement. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the life of the lease, without assuming renewal features, if any, are exercised.

The Company reviews its tangible and intangible assets, including patents and licenses, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. In performing an impairment review, the Company estimates undiscounted cash flows from products that are covered by these patents and licenses. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the carrying amount of the asset. If the evaluation indicates that the carrying value of an asset is not recoverable from its undiscounted cash flows, an impairment loss is measured by comparing the carrying value of the asset to its fair value.

As a result of the purchase consideration and net assets acquired pursuant to the merger (see Note 7 to the consolidated financial statements), the Company recorded a $5.0 million accrual for severance obligations and employee benefits related to certain key officers and employees of Nabi upon completion of the merger. This accrual is classified as a current liability on the condensed consolidated balance sheet.

Research and development expense includes, but is not limited to, the costs of activities associated with: drug discovery, such as medicinal chemistry, virology, microbiology, and biochemistry; drug target discover, such as molecular biology and modeling and structural biology; professional fees paid to third-party service providers in connection with conducting preclinical studies and treating patients enrolled in clinical trials and monitoring, accumulating and evaluating the related data; salaries and personnel-related expenses for our internal staff, including benefits and share-based compensation; the cost to develop, formulate and manufacture product candidates; legal fees associated with patents and intellectual property; consulting fees; license and sponsored research fees paid to third parties; and specialized information systems, depreciation and laboratory facility costs. Research and development costs do not include an allocation of any general and administrative expense. Research and development expenses are expensed as incurred.

The Company has received reimbursement for certain research and development activities pursuant to collaborations with other corporate entities, as well as for services performed pursuant to government grants and contracts, which the Company records as revenues in its consolidated statement of operations.

The Company applies ASC 740 – Income Taxes, which established financial accounting and reporting requirements for the effects of income taxes that result from the Company’s activities during the current and preceding years. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted statutory tax rates expected to apply to taxable income in the jurisdictions and years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Where the Company determines that it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future, the deferred tax assets are reduced by a valuation allowance. The valuation allowance is sufficient to reduce the deferred tax assets to the amount that the Company determines is more likely than not to be realized.

Revenue consists primarily of royalty payments, license fees, milestone payments, payments for services performed pursuant to government grants and contracts as well as certain research and development activities pursuant to collaborations with other corporate entities.

Revenue from royalties is recognized upon sales of the underlying product by the relevant third party. The Company generally receives written confirmation of the amount of royalty revenue from its licensees’ on a quarterly basis.

Revenue for services performed pursuant to contract or grants is recognized as revenue when earned, typically when the underlying services or activities are rendered. The Company analyzes cost reimbursable grants and contracts to determine whether it should report such reimbursements as revenue, or as an offset to the related research and development expenses incurred. For costs incurred and revenues generated from third parties where the Company is deemed to be the principal participant, such as the BARDA contract, it recognizes revenue and costs using the gross basis of accounting; otherwise it uses the net basis of accounting.

Revenue for collaborative research and development activities typically consists of fees for services, or payments when specific milestones are met and match underlying activities occurring during the term of the arrangement.

For milestones that are deemed substantive, the Company recognizes the contingent revenue when: (i) the milestones have been achieved; (ii) no further performance obligations with respect to the milestones exist; and (iii) collection is reasonably assured. A milestone is considered substantive if all of the following conditions are met: (i) the milestone is non-refundable; (ii) achievement of the milestone was not reasonably assured at the inception of the arrangement; (iii) substantive effort is involved to achieve the milestone; and (iv) the amount of the milestone appears reasonable in relation to the effort expended with the other milestones in the arrangement and the related risk associated with achievement of the milestone. If a milestone is deemed not to be substantive, the Company recognizes the portion of the milestone payment as revenue that correlates to activities already performed; the remaining portion of the milestone payment is deferred and recognized as revenue as the Company completes its performance obligations.

Items included in the Company’s consolidated financial statements are measured using the currency of the primary economic environment in which the entity operates, referred to as the functional currency. The Company operates in several jurisdictions with functional currencies of the U.S. dollar, the Australian dollar, and U.K. Sterling. The consolidated financial statements are presented in U.S. dollars.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the related transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, as well as from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognized in the consolidated statements of operations.

The results and financial position of any operations that have a functional currency different from the U.S. dollar are translated into U.S. dollar amounts. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average rates for period.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities are recorded in stockholders’ equity as part of accumulated comprehensive income, net of related taxes.

Legal fees incurred for patent application costs have been charged to expense and reported in research and development expense. Legal fees incurred for patents relating to commercialized products are capitalized and amortized over the life of the patents and reported in research and development expense.

Share-based compensation expense related to stock options is determined at the grant date using an option pricing model based on the closing price of the Company’s common stock on that date. The value of the award that is ultimately expected to vest is recognized as an expense on a straight-line basis over the employee's requisite service period.

Basic and diluted income (loss) per share has been computed based on net income (loss) and the weighted-average number of common shares outstanding during the applicable period. For diluted net loss per share, common stock equivalents (shares of common stock issuable upon the exercise of stock options and warrants) are excluded from the calculation of diluted net loss per share as their inclusion would be anti-dilutive. The Company has excluded all options to purchase common stock in periods indicating a loss, as their effect is anti-dilutive.

Comprehensive income is defined as the total change in stockholders’ equity during the period other than from transactions with stockholders, and for the Company, includes net income and cumulative translation foreign currency adjustments.

The Company currently reviews its business from a divisional perspective. All research and development activities relate to various anti-infective drug discovery and clinical development activities. Recently appointed senior management has assessed that research and development activities represent one reportable business segment. The Company operates globally in developing its projects at its laboratories in Australia and England.

Under recently appointed senior management, the Company is currently undertaking a thorough strategic, operational and financial review, the purpose of which is to determine how it will align and allocate its capital and human resources to its respective ongoing development programs in the future.