BIOVIE INC.

Notes to Condensed Financial Statements

For the Six Months Ended December 31, 2019 and 2018

(unaudited)

Recent accounting pronouncements

The Company considers the applicability and impact of all Accounting Standard Updates (“ASU’s”). ASU’s not discussed below were assessed and determined to be either not applicable or expected to have minimal impact on our balance sheets or statement of operations.

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Accounting”. This guidance aligns the accounting for share-based payment transactions with non-employees to accounting for share-based payment transactions with employees. Companies are required to record a cumulative-effect adjustment (net of tax) to retained earnings as of the beginning of the fiscal year of the adoption. Upon transition, non-employee awards are required to be measured at fair value as of the adoption date. This standard will be effective for fiscal years beginning December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company has adopted this ASU as of July 1, 2019. There has been no impact on the financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair value measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. The new guidance modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company does not expectThis ASU 2018-13 to have a significantwas adopted as of July 1, 2020. There has been no impact to its condensed consolidated financial statements and related disclosures.

BIOVIE INC.

Notes to Condensed Financial Statements

For the Three Months Ended September 30, 2020 and 2019

(unaudited)

The Company’s intangible assets consist of intellectual property acquired from LAT Pharma, Inc. and are amortized over their estimated useful lives. The following is a summary of the intangible assets as of December 31, 2019September 30, 2020 and June 30, 2019:2020:

Amortization expense for the three-month period ended December 31,September 30, 2020 and 2019 and 2018 was $57,344 and $57,344 respectively Amortization expense for the six-month period ended December 31, 2019 and 2018 was $114,689 and $114,689 respectively.

Estimated future amortization expense is as follows:

Equity Transactions with Acuitas

On September 22, 2020, concurrent with the closing of the Company’s Offering, approximately $1.8 million was paid to Acuitas satisfying all amounts owed on the Debenture due September 24, 2020 held by the Company’s controlling stockholder, Acuitas.

Additionally in connection with the close of the public offering on September 22, 2020, the Company issued an aggregate of 6,909,582 shares of Common Stock to Acuitas, representing (i) 5.4 million shares issuable pursuant to Acuitas’ rights under the Purchase Agreement dated July 3, 2018, as amended on June 24, 2019 and October 9, 2019; and the various extension letters as more fully described below; and was recorded as a deemed dividend at the close of the public offering at price of $10/ share, consistent with the Company’s accounting policy; and (ii) the automatic exercise of 1.5 million warrants issued to Acuitas in connection with the Debenture financing at the par value of the Common Stock.

During the three months ended September 30, 2020, the Company received additional draws under the Debenture totaling $436,000. The total draws as of September 22, 2020 were $1.7 million and the related total number of warrants issuable at $4.00 per share of common stock was 424,750 of which 328,250 warrants had been issued. In accordance with the Debenture agreements, as more fully described below; at September 22, 2020 upon the Company’s close of its public offering, al1 the warrants issued related to the debenture totaling 1,453,250 were mandatorily redeemed along with the additional 96,500 shares common stock issued to Acuitas.

The following paragraphs summarize the background of those financings and arrangements which were settled and redeemed on September 22, 2020.

BIOVIE INC.

Notes to Condensed Financial Statements

For the SixThree Months Ended December 31,September 30, 2020 and 2019 and 2018

(unaudited)

Equity Transactions with Acuitas

On July 3, 2018, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Acuitas Group Holding, LLC (“Acuitas”) and certain other purchasers identified in the Purchase Agreement (together with Acuitas, the “Purchasers”) pursuant to which (i) the Purchasers agreed to purchase an aggregate of 2,133,332 shares of the our Series A Convertible Preferred Stock (the “Preferred Stock”) at a price per share of $1.50 per share of Preferred Stock (the “Initial Sale”) and (ii) we agreed to issue warrants (the “Warrants”) to purchase 1,706,666 shares of common stock, each subject to the terms and conditions set forth in the Purchase Agreement, for an aggregate consideration of $3.2 million. We received $160,000 of the $3.2 million in April and May 2018 as prepaid equity. Acuitas also received an additional 6,667 Warrants in connection with the payoff of a note issued by us in favor of Acuitas. The Initial Sale and issuance of the Warrants occurred on July 3, 2018. In addition, Acuitas had the option to purchase up to an additional 1,600,000 shares of common stock at a price per share of $1.88, and warrants on the same terms as the Warrants, within two weeks following the one year anniversary of the closing of the Initial Sale (the “Subsequent Sale”) in the event that we did not obtain $3,000,000 of funding through various non-dilutive grants prior to the one year anniversary of the closing of the Initial Sale, less any federal or FDA grant funding received by the Company. Acuitas is controlled by our Chairman and Chief Executive Officer, Terren Peizer and the Purchasers included Jonathan Adams, James Lang, Cuong Do and Michael Sherman, who are members of our Board.

The Purchase Agreement contained customary representations and warranties. In connection with the disclosure schedule associated with the representations and warranties, we also disclosed customary information, including the following: (i) the existence of the Mallinckrodt petition before the U.S. Patent Trial and Appeal Board, (ii) our capitalization, (iii) our obligation to pay a low single digit royalty on the net sales of BIV201 (continuous infusion terlipressin) to be shared among LAT Pharma LLC members, PharmaIN Corporation and The Barrett Edge, Inc. pursuant to the Agreement and Plan of Merger, dated April 11, 2016, by and between LAT Pharma LLC and us, (iv) our obligation to pay a low single digit royalty on net sales of all terlipressin products covered by specified patents up to a maximum of $200,000 per year pursuant to the Technology Transfer Agreement, dated July 25, 2016, by and between us and the University of Padova (Italy), and (v) certain recent issuances of common stock by us.

Each share of Preferred Stock automatically converted into 100 shares1 share of common stock (prior to reverse split) upon the filing with the Secretary of State of the State of Nevada of a Certificate of Amendment to our Articles of Incorporation (the “Amendment”) on August 13, 2018 that increased the number of authorized shares of common stock to 800,000,000. The Amendment was approved by the written consent of the holders of more than a majority of our issued and outstanding common stock on July 3, 2018 and was filed with the Secretary of State of the State of Nevada 20 calendar days following the distribution of our Definitive Information Statement on Schedule 14 that was filed with the SEC on July 13, 2018.

Pursuant to a letter agreement dated June 24, 2019, Acuitas agreed to modify its existing rights under the Purchase Agreement so that:

BIOVIE INC.

Notes to Condensed Financial Statements

For the Six Months Ended December 31, 2019 and 2018

(unaudited)

BIOVIE INC.

Notes to Condensed Financial Statements

For the Three Months Ended September 30, 2020 and 2019

(unaudited)

Convertible Debenture Transaction with Acuitas

On September 24, 2019, the Company entered into a Securities Purchase Agreement (the “2019 Purchase Agreement”) with Acuitas pursuant to which (i) Acuitas agreed to purchase a 10% OID Convertible Delayed Draw Debenture (the “Debenture”) due September 24, 2020 for an aggregate commitment amount of up to $2.0 million, and (ii) the Company issued 1,125,000 shares (the “Commitment Shares”) of the Company’s common stock and warrants (the “Commitment Warrants”) to purchase an equal number of shares, each subject to the terms and conditions set forth in the 2019 Purchase Agreement. The Debenture accrues additional principal at the rate of 6% per annum and interest at the rate of 10% per annum, is convertible into shares of common stock at $4.00 per share prior to the completion of the company’s planned public offering of units (the “Public Offering”) or, subsequent to the closing of the Public Offering, the lower of $4.00 or 80% of the offering price per unit to the public in the Public Offering and are mandatorily redeemable upon such closing at 100% of the accrued principal amount and unpaid interest to the date of redemption. The Commitment Warrants are five-year warrants, exercisable upon the earlier of the effectiveness of the Company’s current reverse stock split or December 1, 2019, at an amount equal to the lower of $4.00 or 80% of the offering price per unit to the public in the Public Offering. Upon entering into the 2019 Purchase Agreement, the Company drew an initial $500,000 under the Debenture and in accordance with the 2019 Purchase Agreement, Acuitas received an additional 125,000 warrants (the “Bridge Warrants”) having the same terms as the Commitment Warrants.

Any future draws under the Debenture, which may be made from and after October 15, 2019, November 15, 2019 and December 15, 2019 in equal tranches of $500,000 each, will entitle Acuitas to receive additional Bridge Warrants in equal amount upon such funding. In addition, the 2019 Purchase Agreement provides that, should the underwriters in the Public Offering exercise their option to purchase additional securities during the 45 days following closing and the issuance of such securities would result in Acuitas' beneficial ownership (on a fully diluted basis) of shares of common stock being below 60%, Acuitas shall be issued a number of additional shares of common stock and warrants having the same terms as the Commitment Warrants to result in its beneficial ownership (on a fully diluted basis) of shares of common stock equaling 60%.

The issuance of 1,125,000 shares of the Company’s commons stock and warrants to purchase an equal amount number of shares, to its controlling stockholder for the Bridge Financing was accounted for as a deemed dividend due to its related party nature and $17.1 million representing the excess of the fair value of the consideration given for the financing, net of debt discount; was recorded in accumulated deficit for the six monthsyear ended December 31, 2019,June 30, 2020, accordingly. (See accompanied Condensed Statements of Changes in Stockholders’ (Deficit) Equity). A debt discount of $500,000 against the debenture was recorded which will be amortized over the term of the debenture using the effective interest method. The Company recognized amortization of thisthe unearned discount in the amount of $21,595 for the six-month periodthree months ended December 31, 2019.September 30, 2020 and year ended June 30, 2020 of $21,336 and $37,136, respectively.

The Company received partial draws under the Debenture that totaled approximately $1.3 million during the year ended June 30, 2020. The total interest expense related to the draws under the Debenture was approximately $99,000 for the year ended June 30, 2020. On April 1, 2020, the Company entered an amendment to modify the payment of draw number twoaccrued interest amounts under the original terms of the Debenture to capitalize all such amounts as would otherwise accrue on the Debenture. On January 4, 2020, payment of $25,000 and $5,000 on December 5, 2019 and December 13,2019 respectively.$13,487 accrued interest due was paid through the issuance of 4,422 shares of the Company’s common stock. Acuitas and the Company continue to discuss the need and timing for some or all of the remaining draws under the Debenture Agreement. (See subsequent events).Subsequent to the initial $500,000 draw on September 24, 2019, the Company received draws that totaled $813,000 as July 13, 2020, and accordingly; the Company issued additional Bridge Warrants to purchase 203,250 shares of common stock to its controlling stockholder under the terms of the Bridge Financing. Accordingly, on April 16, 2020, the Company recorded the warrants to purchase 125,000 common stock related to the second $500,000 draw under the debenture as a derivative warrant liability as of June 30, 2020. The Company recorded the warrants related to the draws totaling $313,000 to purchase 78,250 common shares as derivative liabilities. 

BIOVIE INC.

Notes to Condensed Financial Statements

For the SixThree Months Ended December 31,September 30, 2020 and 2019 and 2018

(unaudited)

Pursuant to the 2019 Purchase Agreement, Acuitas has agreed to further modify its existing rights under the Purchase Agreement dated July 3, 2018 with the Company so that Acuitas’ previous agreement in June 2019 to waive its rights to a 50% adjustment of the purchase price of the Preferred Stock in the July 2018 transaction, the exercise price of the warrants in such transaction and the price per share in a Subsequent Sale in the event of certain reductions in the useful life of our current intellectual property rights, and effectively exercise its rights to purchase securities in a Subsequent Sale pursuant to a “cashless purchase” at an assumed current market price of approximately $11.25 per share, conditioned in each case on the listing of the Company’s common stock on Nasdaq or the raising of $2.0 million in additional funds in the form of another securities offering, in either case not later than November 30, 2019, such that Acuitas will have irrevocably waived its rights to an adjustment in the purchase price of the Preferred Stock in the Initial Sale and the exercise price of the Warrants and the purchase price of per share in the Subsequent Sale upon the issuance by us of an aggregate of 2,679,916 shares of common stock and 2,679,916 warrants having the same terms as the Commitment Warrants to Acuitas, upon the closing of the Public Offering.

Pursuant to an amendment to the 2019 Purchase Agreement dated October 9, 2019, Acuitas agreed to modify its existing rights under the 2019 Purchase Agreement so that:

On July 14, 2020, the Company, entered into a further extension of its letter agreements dated April 8, 2020, that furthered extended its letter agreement dated February 10, 2020 with Acuitas regarding Acuitas’ previous agreement to modify its existing rights under the Purchase Agreement dated July 3, 2018 with the Company so that its June 2019 waiver of its rights to a 50% adjustment of the purchase price applicable to its initial investment in the Company and the exercise price of the warrants received in such transaction and the price per share should it exercise certain rights to purchase additional securities in the event of certain reductions in the useful life of the Company’s intellectual property rights and commitment to purchase such securities upon the closing of the Offering and commitment to purchase such additional securities would remain effective until October 31, 2020, and accordingly Acuitas was entitled to receive an aggregate of 5,359,832 shares of Common Stock at such closing. In addition, the parties agreed that certain draws under the Company’s current bridge financing with Acuitas were to be made based with respect to the Company’s ongoing capital requirements and current market conditions, notwithstanding certain scheduled availability dates set forth in the 10% OID Convertible Delayed Draw Debenture issued in connection therewith. The letter agreement of July 14, 2020 also confirmed the understanding between the Company and Acuitas regarding certain amounts funded to BioVie that were intended as “partial draws” of credit available under the Debenture which, as of July 14, 2020 hereof aggregated $813,000 in aggregate principal amount in additional to amounts initial funded under the Debenture. Accordingly, such “partial draws” accrued additional principal as amounts otherwise funded pursuant to the original schedule of draws included in the Debenture (as modified by the letter agreement between BioVie and Acuitas dated April 1, 2020 regarding the capitalization of interest otherwise payable) and shall entitle Acuitas to receive a pro rata amount of Bridge Warrants.

BIOVIE INC.

Notes to Condensed Financial Statements

For the SixThree Months Ended December 31,September 30, 2020 and 2019 and 2018

(unaudited)

On September 22, 2020, concurrent with the closing of the Offering; the warrants related to derivative liabilities were automatically exercised in full and the convertible Debenture was paid off in cash expiring the conversion option. The fair value of the derivative liabilities - warrants and derivative liability - conversion option on convertible Debenture prior to redemption at September 22, 2020 was $13.1 million, and the change in the fair value of $8.3 million from June 30, 2020 was recorded in the accompanying condensed Statements of Operations. At December 31, 2019,September 22, 2020, the derivative liabilities, both the warrants and expired conversion option totaling $ 13.1 million were then recorded as additional paid in capital upon automatic exercise of the warrants and payoff of the Debenture.

At September 30, 2020 and June 30, 2020, the estimated fair value of derivative liabilities measured on a recurring basis are as follows:

The following table presents the activity for liabilities measured at fair value using unobservable inputs for the sixthree months ended December 31, 2019:September 30, 2020: 

Derivative liability – Warrants

The Company accounts for stock purchase warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreements. Under applicable accounting guidance, stock warrants that are precluded from being indexed to the Company’s own stock because of full-rachet anti-dilution provisions or the adjustments to the strike price due to an occurrence of a future event; are accounted for as derivative financial instruments. The stock warrants issued September 24, 2019 were not considered indexed to the Company’s own stock because of the adjustment to strike price, an occurrence of a future event such as the Company’s pending capital raise.

BIOVIE INC.

Notes to Condensed Financial Statements

For the SixThree Months Ended December 31,September 30, 2020 and 2019 and 2018

(unaudited)

The warrants associated with the level 3 liability were issued on September 24, 2019 and were valued using the Black-Scholes-Merton model withmodel. The valuation at June 30, 2020 used the following assumptions: stock price of $8.95,$14, exercise price of $4.00, term of 5 yearsyear expiring September 2024,April 2025, volatility of 71.44%76.61%, dividend yield of 0%, and risk-free interest rate of 1.52%0.29%.

The valuation at December 31, 2019September 22, 2020 of the warrants associated with equity financing prior to their automatic exercise in full used were the following assumptions: stock price of $3.50,$9.55, exercise price of $4.00, term of 54 year expiring September 2024, volatility of 80.79%79.69%, dividend yield of 0%, and risk-free interest rate of 1.69%0.21%. (See note 5 “Related Party Transactions – Convertible debenture transactions”Transactions”)

Derivative liability – Conversion option in convertible debenture

The Company valuedrecognized a derivative liability for the conversion option of the $2 million 10% OID Convertible Delayed Draw DebentureDebenture; which may be convertible into shares of common stock at $4.00 per share prior to the completion of an offering or, subsequent to the closing of the offering, the lower of $4.00 or 80% of the offering price per unit to the public in such offering and are mandatorily redeemable upon such closing at 100% of the accrued principal amount and unpaid interest to the date of redemption. (See note 5 “Related Party Transactions –Convertible debenture transactions with Acuitas” as of September 24, 2019). The conversion option was valued on September 24, 2019 using the Black Scholes-Mertons model withvaluation at June 30, 2020 used the following assumptions: stock price of $8.95,$14, conversion price of $4.00, term of 10.25 year expiring September 2020, volatility of 75.48%62.47%, dividend yield of 0%, and risk-free interest rate of 1.78%0.16%.

The valuation at December 31, 2019September 22, 2020 used the following assumptions: stock price of $3.50,$9.55, conversion price of $4.00, term of 10.008 year expiring September 2020, volatility of 109.83%45.49%, dividend yield of 0%, and risk-free interest rate of 1.59%0.01%.

The related Debenture was paid off in cash on September 22, 2020, expiring the conversion option. (See note 5 “Related Party Transactions”)

Stock Options

The following table summarizes the activity relating to the Company’s stock options for the sixthree months ended December 31, 2019:September 30, 2020:

BIOVIE INC.

Notes to Condensed Financial Statements

For the SixThree Months Ended December 31,September 30, 2020 and 2019 and 2018

(unaudited)

The fair value of each option grant on the date of grant is estimated using the Black-Scholes option. The pricing model reflected the following weighted-average assumptions for the six months ended December 31, 2019:

Expected volatility is based on the historical volatilities of three comparable companies of the daily closing price of their respective common stock and the expected life of options is based on historical data with respect to employee exercise periods. The Company accounts for forfeitures as they are incurred.

The Company recorded stock-based compensation expense of $0 and $11,162 for the three- and six- month periods ended December 31, 2019, respectively, and $16,285 and $19,697 for the three- and six- month periods ended December 31, 2018, respectively.

The following is a summary of stock options outstanding and exercisable by exercise price as of December 31, 2019:September 30, 2020:

Stock Warrants

The following table summarizes the warrants activity during the sixthree months ended December 31, 2019:September 30, 2020:

Of the above warrants, 9,391 expire in fiscal year ending June 30, 2022, 4,4554,815 expire in fiscal year ending June 30, 2023, and 1,360,821110,460 expire in fiscal year ending June 30, 2025.2025 and 89,999 expire in fiscal year ending June 30, 2026.

Issuance of common stock through exercise of Stock Options

On July 28, 2020, the Company issued 2,210 shares of common stock pursuant to a cashless exercise of stock options to purchase 3,200 shares at an average exercise price of $4.76 per share.

BIOVIE INC.

Notes to Condensed Financial Statements

For the SixThree Months Ended December 31,September 30, 2020 and 2019 and 2018

(unaudited)

Offerings of Common Stock and Warrants

Issuance of Stock Optionswarrants

On October 1, 2019,July 13, 2020, the Company issued stock optionsWarrants to purchase 800203,250 shares of common stock to its controlling stockholder under the terms of the Bridge Financing. The warrants were exercisable at an exercise price of $4 at any time from the date of issuance until 5 years from the date of issuance. (See Note 5 Related Party Transactions.)

On September 22, 2020, the Company issued warrants to purchase 89,998 shares of common stock to the Chief Financial Officer as partunderwriters of her compensation.the Offering in connection with the close of the Offering of registered Common Stock The stock options were issued andwarrants are exercisable at an exercise price of $8.75$12.50 at any time from date of issuance and expire inuntil 5 years from the date of issuance.

On October 13, 2019, the Company issued stock options to purchase 800 shares of common stock as part of their annual board of director compensation. The stock options were issued and are exercisable at $7.50 at any time from date of issuance and expire in 5 years from the date of issuance.

On November 10, 2019, the Company issued stock options to purchase 800 shares of common stock as part of their annual board of director compensation. The stock options were issued and are exercisable at $6.25 at any time from date of issuance and expire in 5 years from the date of issuance. 

Office Lease 

On July 1, 2019, the Company’s office moved with Acuitas’ new offices to 2120 Colorado Avenue Ste 230, Santa Monica, CA 90404. There is no lease agreement for the new premises and the Company continues to accrue monthly lease payments of $1,000 for the new office under the terms of the previous month-to-month lease for the previous premises which may be cancelled upon 30 days’ written notice.

Challenge to US Patent

On April 30, 2018, we received notice that Mallinckrodt had petitioned the U.S. Patent and Trademark Office (“USPTO”) to institute an Inter Partes Review of our U.S. Patent No. 9,655,945 titled “Treatment of Ascites” (the “’945 patent”). Inter Partes Review is a trial proceeding conducted with the USPTO Patent Trial and Appeal Board (PTAB) to review the patentability of one or more claims of a patent. Such review is limited to grounds of novelty and obviousness on the basis of prior art consisting of patents and printed publications.

On November 13, 2019, the Patent Trial and Appeal Board of the United States Patent and Trademark Office (the “Board”) issued a written decision in theinter partes review (“IPR”) action that was brought by Mallinckrodt Pharmaceuticals Ireland Limited (“Mallinckrodt”) against BioVie Inc. (“BioVie” or “Company”). In that action, Mallinckrodt sought to invalidate BioVie’s patent (U.S. Pat. No. 9,655,945, “Treatment of Ascites”) (the “’945 Patent”). In its decision, the Board determined that all claims of the ‘945 Patent were not patentable because they were either anticipated or obvious in light of prior art. The Board also denied BioVie’s Motion to Amend the claims on similar grounds. The result of the Board’s decision is that the ‘945 patent is no longer valid or enforceable. Acuitas Group Holdings, LLC was aware of this patent challenge when it purchased a majority ownership interest in the company in July 2018.

This ruling is unrelated to the Company’s Orphan drug designations for ascites and hepatorenal syndrome (“HRS”), which remain unchanged. An Orphan drug that is first-to-market typically receives 7 years of market exclusivity in the United States for the designated use(s). In addition, the ruling does not affect the Company’s rights in its pending patent application directed to proprietary liquid formulations of terlipressin for use in its planned Phase 2b/2 and Phase 3 trial,trials, subject to FDA clearance, which could eventually provide up to 20 years of patent coverage in each country in which the Company seeks patent protection, such as the United States, if a patent issues from a patent application according to the patent laws of each issuing country.

BIOVIE INC.

Notes to Condensed Financial Statements

For the Six Months Ended December 31, 2019 and 2018

(unaudited)

Royalty Agreements

Pursuant to the Agreement and Plan of Merger entered into on April 11, 2016 between our predecessor entities, LAT Pharma LLC and NanoAntibiotics, Inc., BioVie is obligated to pay a low single digit royalty on net sales of BIV201 (continuous infusion terlipressin) to be shared among LAT Pharma Members, PharmaIn Corporation, and The Barrett Edge, Inc.

BIOVIE INC.

Notes to Condensed Financial Statements

For the Three Months Ended September 30, 2020 and 2019

(unaudited)

The Company and PharmaIN Corporation, LAT Pharma’s former partner focused on the development of new modified drug candidates in the same therapeutic field but not including BIV201, had agreed to pay royalties equal to less than 1% of future net sales of each company's ascites drug development programs, or if such program is licensed to a third party, less than 5% of each company's net license revenues. On December 24, 2018, the Company returned its partial ownership rights to the PharmaIN modified terlipressin development program and simultaneously paid the remaining balance due on a related debt. PharmaIN, Corp. rights to our program remain unchanged. Additionally the Company obligation to pay a low single digit royalty on the net sales of BIV201 (continuous infusion terlipressin) to be shared among LAT Pharma LLC members, and The Barrett Edge, Inc. pursuant to the Agreement and Plan of Merger, dated April 11, 2016, by and between LAT Pharma LLC. The Company has an obligation to pay a low single digit royalty on net sales of all terlipressin products covered by specified patents up to a maximum of $200,000 per year pursuant to the Technology Transfer Agreement, dated July 25, 2016, by and between us and the University of Padova (Italy).

Pursuant to the Technology Transfer Agreement entered into on July 25, 2016 between BioVie and the University of Padova (Italy), BioVie is obligated to pay a low single digit royalty on net sales of all terlipressin products covered by US patent no. 9,655,645 and any future foreign issuances capped at a maximum of $200,000 per year.

On January 2,October 1, 2020, the Company issued 11,200stock options to purchase 800 shares of common stock to the Chief Financial Officer as part of her compensation. The stock options were issued and are exercisable at an exercise price of $9.54 at any time from date of issuance and expire in 5 years from the date of issuance.

On October 13, 2020, the Company issued stock options to purchase 800 shares of common stock as part of thetheir annual board of director compensation. The share price onstock options were issued and are exercisable at $9.90 at any time from date of issuance was $3.50.and expire in 5 years from the date of issuance.

On January 3, 2020, the Company received a third partial draw of $20,000 and on January 14, 2020 a fourth partial draw of $250,000 of draw number two of the Debenture.   The total of the partial draw received under draw number two of the Debenture was $300,000 at February 12, 2020. Acuitas and the Company continue to discuss the need and timing for some or all the remaining draws under the Debenture Agreement.

On February 11, 2020, the Company entered into a letter agreement dated February 10, 2020 with Acuitas regarding Acuitas’ previous agreement to modify its existing rights under the Purchase Agreement dated July 3, 2018 with the Company so that its June 2019 waiver of its rights to a 50% adjustment of the purchase price applicable to its initial investment in the Company and the exercise price of the warrants received in such transaction and the price per share should it exercise certain rights to purchase additional securities in the event of certain reductions in the useful life of the Company’s intellectual property rights and commitment to purchase such securities upon the closing of the Company’s planned public offering (the “Public Offering”) of shares of Class A common stock (the “Common Stock”) as described in its Registration Statement on Form S-1 (File No. 333-231136) and commitment to purchase such additional securities would remain effective until April 30, 2020, and accordingly Acuitas shall be entitled to receive an aggregate of 5,359,832 shares of Common Stock at such closing. In addition, the parties agreed that certain draws under the Company’s current bridge financing with Acuitas were to be made based with respect to the Company’s ongoing capital requirements and current market conditions, notwithstanding certain scheduled availability dates set forth in the 10% OID Convertible Delayed Draw Debenture issued in connection therewith.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and Section 27A of the Securities Act of 1933. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words “intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will” or the negative of these terms or other comparable terminology, we are identifying forward-looking statements. Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include our; research and development activities, distributor channel; compliance with regulatory impositions; and our capital needs. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. 

Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business. 

All statements other than statements of historical fact are statements that could be deemed forward-looking statements. The Company assumes no obligation and does not intend to update these forward-looking statements, except as required by law. When used in this report, the terms “BioVie”, “Company”, “we”, “our”, and “us” refer to BioVie Inc. 

The following discussion of the Company’s financial condition and the results of operations should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this document. 

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that in addition to the description of historical facts contained herein, this report contains certain forward-looking statements that involve risks and uncertainties as detailed herein and from time to time in the Company’s other filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those, described in the forward-looking statements. These factors include, among others: (a) the Company’s fluctuations in sales, expenses and operating results; (b) risks associated with international operations; (c) regulatory, competitive and contractual risks; (d) product development risks; (e) the ability to achieve strategic initiatives, including but not limited to the ability to achieve sales growth across the business segments through a combination of enhanced sales force, new products, and customer service; and (f) pending litigation. 

Management’s Discussion

BioVie is a clinical-stage company pursuing the discovery, development, and commercialization of innovative drug therapies targeting life-threatening complications of liver cirrhosis. Our initial disease target is ascites, a serious medical condition affecting about 100,000 Americans and many times more worldwide. Our therapeutic drug candidate BIV201 is based on a drug that is approved in about 40 countries to treat related complications of liver cirrhosis (part of the same disease pathway as ascites), but not yet available in the US. The active agent in BIV201, terlipressin, is a potent vasoconstrictor which is in use for various medical conditions around the world. The goal is for BIV201 to interrupt the ascites disease pathway, thereby halting the cycle of accelerating fluid generation in ascites patients.

Comparison of the three months ended December 31, 2019September 30, 2020 to the three months ended December 31, 2018September 30, 2019

Net income (loss)

The net income for the three months ended December 31, 2019September 30, 2020 was $6.7approximately $7.3 million as compared to a net loss of $501,000$3.8 million for the three months ended December 31, 2018.September 30, 2019. The increase in net income (loss) of $7.2approximately $11.1 million was primarily due to a decreasechange in fair value of derivative liabilities of approximately $7.4$7.9 million, offset by an increasethe decreases in interest expense of $2.9 million and operating expenses of approximately $210,000. The change in the fair value of derivative liabilities was due to a decrease in the Company’s stock price.

$329,000.

Total operating expenses for the three months ended December 31, 2019September 30, 2020 were approximately $710,000$387,000 as compared to $501,000$706,000 for the three months ended December 31, 2018.September 30, 2019.  The net increasedecrease of approximately $209,000 was primarily due to activities related to the Phase 2a clinical trials wrap up and preparation of the protocols for the Phase 2b/3 trials$319,000 during the three months ended December 31, 2019September 30, 2020, was primarily due to minimal research and an increase in selling, general and administrative expenses.development activities as the Company focused its efforts on closing its public offering of registered common stock which occurred on September 22, 2020.

Research and Development Expenses

Research and development expenses were approximately $347,000$101,000 for the three months ended December 31, 2019, an increaseSeptember 30, 2020, a net decrease of $141,000,approximately $241,000, from $206,000$342,000 for the three months ended December 31, 2018. The increase was primarily attributedSeptember 30, 2019. Research and development activities were curtailed to its minimum level as the wrapping upCompany focused its efforts on closing of the phase 2a clinical trials and readying for the next phase of trials including the preparing the protocols and manufacturing of the prefilled syringeits public offering which may be used in the next phase of trials subject to FDA clearance.occurred on September 22, 2020.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were approximately $228,000 for the three months ended September 30, 2020 compared to $307,000 for the three months ended December 31, 2019, aSeptember 30, 2019. The net increasedecrease of approximately $69,000, from $238,000 for the three months ended December 31, 2018. The net increase$79,000 was primarily attributed to a decrease in legal and professional fees of $100,000 offset by an increase in the insurance premiums of approximately $73,000$21,000 for increased coverage.

Comparison of the six months ended December 31, 2019 to the six months ended December 31, 2018

Net income (loss)

The net income for the six months ended December 31, 2019 was $2.8 million as compared to a net loss of $940,000 for the six months ended December 31, 2018. The increase in net income of $3.8 million was due to a decrease in fair value of derivative liabilities of $7.8 million offset by an increase in operating expenses of $424,000 and increase in interest expense of $3.5 million related to the embedded derivative liability warrants. The change in the fair value of derivative liabilities was due to a decrease in the Company’s stock price.

Total operating expenses for the six months ended December 31, 2019 were approximately $1.4 million compared to $992,000 for the six months ended December 31, 2018.  The net increase of approximately $424,000 was primarily due to activities related to the Phase 2a clinical trials wrap up and preparation of the protocols for the Phase 2b/3 trials during the six months ended December 31, 2019 and an increase in selling, general and administrative expenses.

Research and Development Expenses

Research and development expenses were approximately $688,000 for the six months ended December 31, 2019, an increase of $287,000, from $401,000 for the six months ended December 31, 2018. The increase was primarily attributed to the wrapping up of the phase 2a clinical trials and readying for the next phase of trials including the preparing the protocols and manufacturing of the prefilled syringe which may be used in the next phase of trials subject to FDA clearance.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were approximately $614,000 for the six months ended December 31, 2019, a net increase of approximately $137,000, from $477,000 for the six months ended December 31, 2018. The net increase was primarily attributed to an increase in the insurance premiums of approximately $88,000 for increased coverage, increased payroll of approximately $30,000 due the hiring of a half time chief financial officer that joined in October 2018 and other expenses of approximately $19,000 related to activities of the Company’s capital raise and up listing to the Nasdaq.coverage.

Capital Resources and Liquidity

At December 31, 2019On September 22, 2020, the Company hadclosed a registered public offering (the “Offering”) issuing 1,799,980 of its Class A common stock, par value $0.0001 per share (the “Common Stock”) at $10 per share, resulting in net proceeds to the Company of approximately $3,000$15.6 million, net of issuance costs of approximately $2.4 million; and of which approximately $1.8 million was used to satisfy all amounts owing in cash and had completed its Phase 2a clinical trialrespect of a 10% OID Convertible Delayed Draw Debenture (the “Debenture”) due September 24, 2020 held by the Company’s controlling stockholder, Acuitas Group Holdings, LLC (“Acuitas”).

Concurrently with the closing of the BIV201 therapy. Offering and repayment of the Debenture, the Company issued an aggregate of 6,909,582 shares of Common Stock to Acuitas, representing (i) shares issuable pursuant to Acuitas’ rights under the Purchase Agreement dated July 3, 2018 with the Company resulting from a 50% adjustment of the purchase price applicable to its initial investment in the Company and the exercise price of the warrants received in such transaction and the price per share should it exercise certain rights to purchase additional securities in the event of certain reductions in the useful life of the Company’s intellectual property rights, and (ii) the automatic exercise of warrants issued to Acuitas in connection with the Debenture financing at the par value of the Common Stock. (See Note 5 Related Party Transactions in the accompanying interim condensed financial statements.)

On September 24, 2019,17, 2020, the Company’s Common Stock was approved for listing on The NASDAQ Capital Market (“Nasdaq”) under the symbol “BIVI” and began trading on September 18, 2020.

Subsequent to the closing on September 22, 2020, the Company entered intoreduced further its accounts payable and accrued liabilities and on September 30, 2020 had working capital of approximately $13.1 million and cash of $13.2 million. Total liabilities were reduced to approximately $256,000 on September 30, 2020, a Securities Purchase Agreement with its controlling stockholder regarding bridge financing (the “Bridge Financing”)decrease of $23.3 million from $23.6 million on June 30, 2020. The decrease in the form of up to $2.0 million in convertible debt and warrants, of which $750,000 has been drawn to date. Amounts borrowed undertotal liabilities resulted from the Bridge Financing must be repaid with the proceeds of our potential public offering of equity securities referred to below. The availability of additional draws under the Bridge Financing is under discussion with Acuitas in light of delays in the timingpay off of the potential public offering. As further discussed below,Debenture of approximately $1.8 million, expiring the Company is pursuing various options to raise further financing to continuederivative liability from the testingconversion option on Debenture; and development of its product. If the Company is not successful in raising additional funds it may reduce its monthly spend and potentially delay the implementationredemption of the larger scale Phase 2b Clinical trial until sufficient funding is secured. On January 3, 2020, Acuitas provided the Company a short-term interest free advance of $20,000. The short-term advance along with the $30,000 advances in December 2019 were rolled into the partial draw number 2 of $250,000 received on January 14, 2020.warrants which eliminated its related derivative liabilities.

As of December 31, 2019, the Company had anSeptember 30, 2020, stockholders’ equity was approximately $14.6 million and its accumulated deficit ofwas approximately $21.5 million and as$87 million. As a development stage enterprise, the Company expects substantial losses in future periods. The accompanying interim condensed financial statements were prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Based on the Company’s plans, management believes it has sufficient funds to fund its operations through our next round of clinical trials through November 2021.

The Company’s future operations arewill be dependent on the success of the Company’s ongoing development and commercialization effort, as well as continuing to secure additional financing.

We cannot assure you that our drug candidate will be developed, work, or receive regulatory approval; that we will ever earn revenues sufficient to support our operations or that we will ever be profitable. Furthermore, since we have no committed source of sufficient financing, we cannot assure you that we will be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to severely curtail, or even to cease, our operations.

Additionally, in April 2019, to facilitate our planned up listing to the NASDAQ Stock Market and related potential future issuances and sales of our equity securities for ordinary corporate finance and general corporate purposes and as recommended by our Board of Directors (“Board”), our stockholders approved an amendment to our Articles of Incorporation to effect a reverse split of our outstanding Class A common stock in the range of 50:1 to 200:1, as determined by our Board. On November 22, 2019, the Company effected a reverse stock split of 125 common stock for every 1 common stock. All share amounts have been updated to reflect the reverse stock split.

Managementmanagement intends to attemptcontinue to secure additional required funding primarily through additional equity or debt financings. We may also seek to secure required funding through sales or out-licensing of intellectual property assets, seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts, or similar transactions.  However, there can be no assurance that we will be able to obtain required funding.  If we are unsuccessful in securing funding from any of these sources, we will defer, reduce, or eliminate certain planned expenditures in our research protocols.  If we do not have sufficient funds

The emergence of widespread health emergencies or pandemics of the coronavirus ("Covid-19"), may lead to continue operations, we could be requiredcontinued regional quarantines, business shutdowns, labor shortages, disruptions to seek bankruptcy protection or other alternatives that could result in our stockholders losing some orsupply chains, and overall economic instability, including the duration and spread of the outbreak and restrictions and the impact of Covid-19 on the financial markets and the overall economy, all of their investment in us.

These circumstances raise substantial doubt on ourwhich are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.raise funds may be materially adversely affected.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect or change on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the Company is a party, under which the Company has (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets. 

Critical Accounting Policies and Estimates

For the six-monththree-month period ended December 31, 2019,September 30, 2020, there were no significant changes to the Company’s critical accounting policies as identified in the Annual Report Form 10-K for the fiscal year ended June 30, 2019.2020.

New Accounting Pronouncements

The Company considered the applicability and impact of recent accounting pronouncements and determined those to be either not applicable or expected to have minimal impact on our balance sheets or statement of operations.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4.  Controls and Procedures

We maintain “disclosure controls and procedures.” Such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Office and Chief Financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgement in evaluating the cost-benefit relationship of possible disclosure and procedures. The design of and disclosure controls and procedures also are based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15f and 15d-15(f) under the Exchange Act), that occurred during the quarter ended December 31, 2019September 30, 2020 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

To our knowledge, neither the Company nor any of our officers or directors is a party to any material legal proceeding or litigation and such persons know of no material legal proceeding or contemplated or threatened litigation. There are no judgments against us or our officers or directors. None of our officers or directors has been convicted of a felony or misdemeanor relating to securities or performance in corporate office.

Item 1A. Risk Factors 

Not applicable to smaller reporting companies.

Item 2. Unregistered sales of equity securities

All sales of unregistered securities during the sixthree months ended December 31, 2019September 30, 2020 were previously disclosed in a Current report on Form 8-K.

Item 3. Defaults Upon Senior Securities

None

Item 4.  Mine Safety Disclosures

None

Item 5.  Other Information

On February 11, 2020, the Company entered into a letter agreement dated February 10, 2020 with Acuitas regarding Acuitas’ previous agreement to modify its existing rights under the Purchase Agreement dated July 3, 2018 with the Company so that its June 2019 waiver of its rights to a 50% adjustment of the purchase price applicable to its initial investment in the Company and the exercise price of the warrants received in such transaction and the price per share should it exercise certain rights to purchase additional securities in the event of certain reductions in the useful life of the Company’s intellectual property rights and commitment to purchase such securities upon the closing of the Company’s planned public offering (the “Public Offering”) of shares of Class A common stock (the “Common Stock”) as described in its Registration Statement on Form S-1 (File No. 333-231136) and commitment to purchase such additional securities would remain effective until April 30, 2020, and accordingly Acuitas shall be entitled to receive an aggregate of 5,359,832 shares of Common Stock at such closing. In addition, the parties agreed that certain draws under the Company’s current bridge financing with Acuitas were to be made based with respect to the Company’s ongoing capital requirements and current market conditions, notwithstanding certain scheduled availability dates set forth in the 10% OID Convertible Delayed Draw Debenture issued in connection therewith.

Director Hari Kumar resigned from the Company’s Board of Directors effective February 12, 2020. Dr. Kumar had served as a director since May 2017. The Company appreciates the dedicated service of Dr. Kumar.None 

Item 6. Exhibits

(a) Exhibit index

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

BioVie Inc.,