----

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| x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|--------------------------------------------------------------------------------|

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

| New York                                                      |   | 14-1760865                          |
|---------------------------------------------------------------|--------|-------------------------------------|
| (State or Other Jurisdiction ofIncorporation or Organization) |   | (I.R.S. EmployerIdentification No.) |
|                                                     |   |
| 11552 Prosperous DriveOdessa, Florida                         |   | 33556                               |
| (Address of Principal Executive Offices)                      |   | (Zip Code)                          |

| Large accelerated filer             |  ̈             | Accelerated filer              |  ̈ |
|-----------------------------------------------|--------------------|-------------------------------------|--------|
| Non-accelerated filer                         |  ̈   | Smaller reporting company | x      |
| (Do not check if a smaller reporting company) |               |                                |   |

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|                 |                                        |   |   |   |
|----------------------|---------------------------------------------|--------|--------|--------|
| PART II              |                                        |   |   |   |
|                 |                                        |   |   |   |
| ITEM 8.              | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |   |   | 3      |   |
|                 |                                        |   |   |   |   |
| ITEM 15.             | EXHIBITS, FINANCIAL STATEMENT SCHEDULES     |   |   | 4      |   |
|                 |                                        |   |   |   |   |
| SIGNATURES           |                                        |   | 5      |   |
|                 |                                        |   |   |   |
| FINANCIAL STATEMENTS |                                        |   | 6      |   |

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Table of Contents

| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
|--------------|----------------------------------------------|

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Table of Contents

| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
|---------------|------------------------------------------|

|   |         |                                                                                                                                              |
|--------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| No.    |    | Exhibit                                                                                                                                           |
|   |         |
| 31.1   |    | Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002                                                |
|   |         |
| 31.2   |    | Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002                                                |
|   |         |
| 32.1   |    | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |         |
| 32.2   |    | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

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Table of Contents

|                      | DAIS ANALYTIC CORPORATION |                                                                                                      |
|---------------------------|---------------------------|-----------------------------------------------------------------------------------------------------------|
|                      |                      |                                                                                                      |   |
| Dated: June 14, 2011 | By:                       | /S/ TIMOTHY N. TANGREDI                                                                                   |   |
|                      |                      | Timothy N. TangrediChairman of the BoardChief Executive Officer and Director(Principal Executive Officer) |   |
|                      |                      |                                                                                                      |   |
| Dated: June 14, 2011      | By:                       | /S/ JUDITH C. NORSTRUD                                                                                    |   |
|                      |                      | Judith C. NorstrudChief Financial Officer and Treasurer(Principal Financial and Accounting Officer)       |   |

|                    |   |                                                        |   |          |
|-------------------------|--------|-------------------------------------------------------------|--------|---------------|
| Signatures              |   | Title                                                       |   | Date          |
|                    |   |                                                        |   |          |
| /S/ TIMOTHY N. TANGREDI |   |                                                        |   | June 14, 2011 |
| Timothy N. Tangredi     |   | Chairman of the Board, Chief Executive Officer and Director |   |          |
|                    |   |                                                        |   |          |
| /S/ ROBERT W. SCHWARTZ  |   | Director                                                    |   | June 14, 2011 |
| Robert W. Schwartz      |   |                                                        |   |          |
|                    |   |                                                        |   |          |
| /S/ RAYMOND KAZYAKA SR. |   | Director                                                    |   | June 14, 2011 |
| Raymond Kazyaka Sr.     |   |                                                        |   |          |

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Table of Contents

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Table of Contents

Dais Analytic Corporation

Financial Statements

Years Ended December 31, 2010 and 2009

Contents

|                                                    |         |   |    |         |
|---------------------------------------------------------|--------------|--------|---------|--------------|
| Report of Independent Registered Public Accounting Firm |    |   | 6  |    |
|                                                    |         |   |    |         |
| Financial Statements:                                   |    |   |    |         |
| Balance Sheets                                          |    |   | 7       |    |
| Statements of Operations                                |    |   | 8       |    |
| Statements of Stockholders’ Deficit               |    |   | 9       |    |
| Statements of Cash Flows                                |    |   | 10      |    |
| Notes to Financial Statements                           |    |   | 11      |    |

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Table of Contents

Report of Independent Registered Public Accounting Firm

|                                  |
|---------------------------------------|
|                                       |
| Cross, Fernandez & Riley LLP |
| Orlando, Florida March 31, 2011  |

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Table of Contents

Dais Analytic Corporation

Balance Sheets

|                                                                                                                                                                                                    |         |              |                |         |     |   |                |         |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------------------|---------------------|--------------|----------|--------|---------------------|--------------|
|                                                                                                                                                                                                    |    | December 31, |                |
|                                                                                                                                                                                                    |    | 2010              |                |         | 2009     |   |
|                                                                                                                                                                                                    |    |              |                |         | Restated |   |
| Assets                                                                                                                                                                                                  |    |              |                |         |     |   |                |         |
| Current assets:                                                                                                                                                                                         |    |              |                |         |     |   |                |         |
| Cash and cash equivalents                                                                                                                                                                               |    | $                 | 304,656             |    |     | $      | 1,085,628           |    |
| Accounts receivable                                                                                                                                                                                     |    |              | 828,632             |    |     |   | 187,434             |    |
| Other receivables                                                                                                                                                                                       |    |              | 59,526              |    |     |   | —   |    |
| Inventory                                                                                                                                                                                               |    |              | 294,069             |    |     |   | 149,986             |    |
| Prepaid expenses and other current assets                                                                                                                                                               |    |              | 258,136             |    |     |   | 103,571             |    |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
|                                                                                                                                                                                                    |         |              |
| Total current assets                                                                                                                                                                                    |    |              | 1,745,019           |    |     |   | 1,526,619           |    |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
|                                                                                                                                                                                                    |         |              |
| Property and equipment, net                                                                                                                                                                             |    |              | 147,911             |    |     |   | 19,383              |    |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
|                                                                                                                                                                                                    |         |              |
| Other assets:                                                                                                                                                                                           |    |              |                |         |     |   |                |         |
| Deposits                                                                                                                                                                                                |    |              | 3,280               |    |     |   | 2,280               |    |
| Patents, net of accumulated amortization of $112,240 and $107,319 at December 31, 2010 and 2009, respectively                                                                                      |    |              | 74,363              |    |     |   | 72,464              |    |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
| Total other assets                                                                                                                                                                                      |    |              | 77,643              |    |     |   | 74,744              |    |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
|                                                                                                                                                                                                    |    | $                 | 1,970,573           |    |     | $      | 1,620,746           |    |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
|                                                                                                                                                                                                    |         |              |
| Liabilities and Stockholders’ Deficit                                                                                                                                                             |    |              |                |         |     |   |                |         |
| Current liabilities:                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
| Accounts payable, including related party payables of $151,440 and $150,740 at December 31, 2010 and 2009, respectively                                                                       |    | $                 | 620,196             |    |     | $      | 385,955             |    |
| Accrued compensation and related benefits                                                                                                                                                               |    |              | 1,426,022           |    |     |   | 1,314,356           |    |
| Accrued expenses, other                                                                                                                                                                                 |    |              | 241,861             |    |     |   | 223,597             |    |
| Current portion of deferred revenue                                                                                                                                                                     |    |              | 647,804             |    |     |   | 292,457             |    |
| Current portion of notes payable                                                                                                                                                                        |    |              | 50,000              |    |     |   | 150,000             |    |
| Current portion of notes payable, related party                                                                                                                                                         |    |              | 1,620,624           |    |     |   | 1,425,624           |    |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
|                                                                                                                                                                                                    |         |              |
| Total current liabilities                                                                                                                                                                               |    |              | 4,606,507           |    |     |   | 3,791,989           |    |
|                                                                                                                                                                                                    |         |              |
| Long-term liabilities:                                                                                                                                                                                  |    |              |                |         |     |   |                |         |
| Long-term portion of notes payable, related party                                                                                                                                                       |    |              | —   |    |     |   | 300,000             |    |
| Warrant liability                                                                                                                                                                                       |    |              | 3,958,318           |    |     |   | 4,577,119           |    |
| Deferred revenue, net of current portion                                                                                                                                                                |    |              | 127,840             |    |     |   | 207,696             |    |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
|                                                                                                                                                                                                    |         |              |
| Total long-term liabilities                                                                                                                                                                             |    |              | 4,086,158           |    |     |   | 5,084,815           |    |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
|                                                                                                                                                                                                    |         |              |
| Stockholders’ deficit:                                                                                                                                                                            |    |              |                |         |     |   |                |         |
| Preferred stock; $0.01 par value; 10,000,000 shares authorized; 0 shares issued and outstanding                                                                                                         |    |              | —   |    |     |   | —   |    |
| Common stock; $0.01 par value; 200,000,000 shares authorized; 33,563,428 and 29,352,930 shares issued and 33,306,215 and 29,095,717 shares outstanding at December 31, 2010 and 2009, respectively |    |              | 335,635             |    |     |   | 293,530             |    |
| Capital in excess of par value                                                                                                                                                                          |    |              | 29,852,347          |    |     |   | 27,926,893          |    |
| Accumulated deficit                                                                                                                                                                                     |    |              | (35,637,962         | )            |     |   | (34,204,369         | )            |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
|                                                                                                                                                                                                    |    |              | (5,449,980          | )            |     |   | (5,983,946          | )            |
| Treasury stock at cost, 257,213 shares                                                                                                                                                                  |    |              | (1,272,112          | )            |     |   | (1,272,112          | )            |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
| Total stockholders’ deficit                                                                                                                                                                       |    |              | (6,722,092          | )            |     |   | (7,256,058          | )            |
|                                                                                                                                                                                                    |    |              |                |         |     |   |                |         |
|                                                                                                                                                                                                    |    | $                 | 1,970,573           |    |     | $      | 1,620,746           |    |

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Table of Contents

Dais Analytic Corporation

Statements of Operations

|                                                                                  |         |                         |                |         |     |   |                |         |
|---------------------------------------------------------------------------------------|--------------|------------------------------|---------------------|--------------|----------|--------|---------------------|--------------|
|                                                                                  |    | Year Ended December 31, |                |
|                                                                                  |    | 2010                         |                |         | 2009     |   |
|                                                                                  |    |                         |                |         | Restated |   |
| Revenue:                                                                              |    |                         |                |         |     |   |                |         |
| Sales                                                                                 |    | $                            | 3,260,468           |    |     | $      | 1,447,071           |    |
| License fees                                                                          |    |                         | 82,000              |    |     |   | 84,144              |    |
|                                                                                  |    |                         |                |         |     |   |                |         |
|                                                                                  |    |                         | 3,342,468           |    |     |   | 1,531,215           |    |
|                                                                                  |    |                         |                |         |     |   |                |         |
| Cost of goods sold                                                                    |    |                         | 2,290,041           |    |     |   | 1,071,098           |    |
|                                                                                  |    |                         |                |         |     |   |                |         |
| Gross profit                                                                          |    |                         | 1,052,427           |    |     |   | 460,117             |    |
| Expenses:                                                                             |    |                         |                |         |     |   |                |         |
| Research and development expenses, net of government grant proceeds of $99,732 and $0 |    |                         | 238,182             |    |     |   | 6,600               |    |
| Selling, general and administrative                                                   |    |                         | 2,693,092           |    |     |   | 3,217,992           |    |
|                                                                                  |    |                         | 2,931,274           |    |     |   | 3,224,592           |    |
|                                                                                  |    |                         |                |         |     |   |                |         |
| Loss from operations                                                                  |    |                         | (1,878,847          | )            |     |   | (2,764,475          | )            |
| Other expense (income):                                                               |    |                         |                |         |     |   |                |         |
| Other (income)                                                                        |    |                         | (36,003             | )       |     |   | —   |    |
| Change in fair value of warrant liability                                             |    |                         | (618,801            | )       |     |   | 3,731,694           |    |
| Interest expense                                                                      |    |                         | 209,550             |    |     |   | 621,574             |    |
| Interest income                                                                       |    |                         | —   |    |     |   | (667                | )            |
|                                                                                  |    |                         |                |         |     |   |                |         |
|                                                                                  |    |                         | (445,254            | )            |     |   | 4,352,601           |    |
|                                                                                  |    |                         |                |         |     |   |                |         |
|                                                                                  |         |                         |
| Net loss                                                                              |    | $                            | (1,433,593          | )            |     | $      | (7,117,076          | )            |
|                                                                                  |    |                         |                |         |     |   |                |         |
|                                                                                  |         |                         |
| Net loss per common share, basic and diluted                                          |    | $                            | (0.05               | )            |     | $      | (0.36               | )            |
|                                                                                  |    |                         |                |         |     |   |                |         |
|                                                                                  |         |                         |
| Weighted average number of common shares, basic and diluted                           |    |                         | 29,985,632          |    |     |   | 19,960,150          |    |

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Table of Contents

Dais Analytic Corporation

Statements of Stockholders’ Deficit

Years Ended December 31, 2010 and 2009

|                                                                                  |    | Common Stock |                |    | Capital inExcess of |   |                | Accumulated  |         |   | PrepaidServicesPaid forwithCommon |         |   | Treasury |                |         | TotalStockholders’ |   |
|---------------------------------------------------------------------------------------|--------------|--------------|---------------------|--------------|---------------------|--------|---------------------|--------------|--------------|--------|-----------------------------------|--------------|--------|----------|---------------------|--------------|--------------------------|--------|
|                                                                                  |    | Shares       |                |    | Amount              |   |           | Par Value    |         |   | Deficit                           |         |   | Stock    |                |         | Stock                    |   |   | Deficit |   |
| Balance, December 31, 2008                                                       |    |         | 12,162,398          |    |           |   | 121,624             |    |    |   | 25,253,196                        |    |   |     | (28,776,769         | )            |                     |   | (23,375 | ) |   |   | (1,272,112 | ) |   |   | (4,697,436 | ) |
| Issuance of common stock for conversion of notes payable and related accrued interest |    |         | 13,553,822          |    |           |   | 135,538             |    |    |   | 2,576,062                         |    |   |     | —   |    |                     |   | —   |    |   |   | —   |    |   |   | 2,711,600 |    |
| Issuance of common stock and warrant for services                                     |    |         | 344,692             |    |           |   | 3,448               |    |    |   | 105,029                           |    |   |     | —   |    |                     |   | 23,375 |    |   |   | —   |    |   |   | 131,852 |    |
| Stock-based compensation expense                                                      |    |         | —   |    |           |   | —   |    |    |   | 1,504,669                         |    |   |     | —   |    |                     |   | —   |    |   |   | —   |    |   |   | 1,504,669 |    |
| Issuance of warrants for debt conversion                                              |    |         | —   |    |           |   | —   |    |    |   | 413,008                           |    |   |     | —   |    |                     |   | —   |    |   |   | —   |    |   |   | 413,008 |    |
| Issuance of common stock and warrants for cash                                        |    |         | 2,490,385           |    |           |   | 24,904              |    |    |   | 613,596                           |    |   |     | —   |    |                     |   | —   |    |   |   | —   |    |   |   | 638,500 |    |
| Cumulative effect of change in accounting principle for warrant classification        |    |         | —   |    |           |   | —   |    |    |   | (3,623,448                        | )       |   |     | 1,689,476           |    |                     |   | —   |    |   |   | —   |    |   |   | (1,933,972 | )  |
| Exercise of warrants and options                                                      |    |         | 801,633             |    |           |   | 8,016               |    |    |   | 1,084,781                         |    |   |     | —   |    |                     |   | —   |    |   |   | —   |    |   |   | 1,092,797 |    |
| Net loss, restated                                                                    |    |         | —   |    |           |   | —   |    |    |   | —                 |    |   |     | (7,117,076          | )            |                     |   | —   |    |   |   | —   |    |   |   | (7,117,076 | ) |
|                                                                                  |    |         |                |         |           |   |                |         |    |   |                              |         |   |     |                |         |                     |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2009, restated                                             |    |         | 29,352,930          |    |           | $      | 293,530             |    |    | $      | 27,926,893                        |    |   | $        | (34,204,369         | )            |                     | $      | —   |    |   | $ | (1,272,112 | ) |   | $ | (7,256,058 | ) |
| Issuance of common stock and warrants for services                                    |    |         | 888,692             |    |           |   | 8,887               |    |    |   | 503,993                           |    |   |     | —   |    |                     |   | —   |    |   |   | —   |    |   |   | 512,880 |    |
| Issuance of common stock for conversion of notes payable                              |    |         | 1,000,384           |    |           |   | 10,004              |    |    |   | 190,073                           |    |   |     | —   |    |                     |   | —   |    |   |   | —   |    |   |   | 200,077 |    |
| Stock based compensation                                                              |    |         | —   |    |           |   | —   |    |    |   | 651,032                           |    |   |     | —   |    |                     |   | —   |    |   |   | —   |    |   |   | 651,032 |    |
| Issuance of common stock in exchange for debt settlement                              |    |         | 2,321,422           |    |           |   | 23,214              |    |    |   | 580,356                           |    |   |     | —   |    |                     |   | —   |    |   |   | —   |    |   |   | 603,570 |    |
| Net loss                                                                              |    |         | —   |    |           |   | —   |    |    |   | —                 |    |   |     | (1,433,593          | )       |                     |   | —   |    |   |   | —   |    |   |   | (1,433,593 | )  |
|                                                                                  |    |         |                |         |           |   |                |         |    |   |                              |         |   |     |                |         |                     |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2010                                                       |    |         | 33,563,428          |    |           | $      | 335,635             |    |    | $      | 29,852,347                        |    |   | $        | (35,637,962         | )       |                     | $      | —   |    |   | $ | (1,272,112 | )  |   | $ | (6,722,092 | )  |

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Table of Contents

Dais Analytic Corporation

Statements of Cash Flows

|                                                                                                                         |    | Years Ended December 31, |                |
|------------------------------------------------------------------------------------------------------------------------------|--------------|-------------------------------|---------------------|
|                                                                                                                         |    | 2010                          |                |   | 2009 |   |
|                                                                                                                         |    |                          |                |   | (restated) |   |
| Operating activities                                                                                                         |    |                          |                |   |   |   |   |   |
| Net loss                                                                                                                     |    | $                             | (1,433,593          | ) |   | $ | (7,117,076 | ) |
|                                                                                                                         |    |                          |                |   |   |   |   |   |
| Adjustments to reconcile net loss to net cash used by operating activities:                                                  |    |                          |                |   |   |   |   |   |
| Depreciation and amortization                                                                                                |    |                          | 15,276              |    |   |   | 19,826 |    |
| Amortization of deferred loan costs                                                                                          |    |                          | —   |    |   |   | 1,004 |    |
| Amortization of discount on convertible notes                                                                                |    |                          | —   |    |   |   | 144 |    |
| Amortization of the beneficial conversion feature on convertible notes                                                       |    |                          | —   |    |   |   | 29,992 |    |
| Issuance of common stock, stock options and stock warrants for services and amortization of common stock issued for services |    |                          | 287,035             |    |   |   | 110,316 |    |
| Stock based compensation expense                                                                                             |    |                          | 651,034             |    |   |   | 1,504,669 |    |
| Issuance of common stock warrants to induce conversion of notes payable                                                      |    |                          | —   |    |   |   | 413,008 |    |
| Change in fair value of warrant liability                                                                                    |    |                          | (618,801            | )  |   |   | 3,731,694 |    |
| (Increase) decrease in:                                                                                                      |    |                          |                |   |   |   |   |   |
| Accounts receivable                                                                                                          |    |                          | (641,198            | ) |   |   | 1,536 |    |
| Other receivables                                                                                                            |    |                          | (59,526             | ) |   |   | —   |    |
| Inventory                                                                                                                    |    |                          | (144,083            | ) |   |   | (2,858 | ) |
| Prepaid expenses and other current assets                                                                                    |    |                          | (4,984              | ) |   |   | (50,853 | ) |
| Increase (decrease) in:                                                                                                      |    |                          |                |   |   |   |   |   |
| Accounts payable and accrued expenses                                                                                        |    |                          | 380,835             |    |   |   | 251,014 |    |
| Accrued compensation and related benefits                                                                                    |    |                          | 111,666             |    |   |   | 166,967 |    |
| Deferred revenue                                                                                                             |    |                          | 275,491             |    |   |   | 122,239 |    |
|                                                                                                                         |    |                          |                |   |   |   |   |   |
| Net cash used by operating activities                                                                                        |    |                          | (1,180,848          | ) |   |   | (818,378 | ) |
|                                                                                                                         |    |                          |                |   |   |   |   |   |
| Investing activities                                                                                                         |    |                          |                |   |   |   |   |   |
| Increase in patent costs                                                                                                     |    |                          | (6,819              | ) |   |   | (39,265 | )  |
| Purchase of property and equipment                                                                                           |    |                          | (113,305            | ) |   |   | (1,346 | ) |
|                                                                                                                         |    |                          |                |   |   |   |   |   |
| Net cash used by investing activities                                                                                        |    |                          | (120,124            | )  |   |   | (40,611 | )  |
|                                                                                                                         |    |                          |                |   |   |   |   |   |
| Financing activities                                                                                                         |    |                          |                |   |   |   |   |   |
| Proceeds from issuance of notes payable, related party                                                                       |    |                          | 620,000             |    |   |   | 1,565,000 |    |
| Payments on notes payable, related party                                                                                     |    |                          | (100,000            | ) |   |   | (290,000 | ) |
| Proceeds from advance from related party                                                                                     |    |                          | —   |    |   |   | 222,900 |    |
| Repayments of advance from related party                                                                                     |    |                          | —   |    |   |   | (222,900 | ) |
| Issuance of common stock and exercise of warrants for cash                                                                   |    |                          | —   |    |   |   | 642,750 |    |
|                                                                                                                         |    |                          |                |   |   |   |   |   |
| Net cash provided by financing activities                                                                                    |    |                          | 520,000             |    |   |   | 1,917,750 |    |
|                                                                                                                         |    |                          |                |   |   |   |   |   |
| Net (decrease) increase in cash and cash equivalents                                                                         |    |                          | (780,972            | ) |   |   | 1,058,761 |    |
|                                                                                                                         |         |                          |
| Cash and cash equivalents, beginning of period                                                                               |    |                          | 1,085,628           |    |   |   | 26,867 |    |
|                                                                                                                         |    |                          |                |   |   |   |   |   |
| Cash and cash equivalents, end of period                                                                                     |    | $                             | 304,656             |    |   | $ | 1,085,628 |    |
| Cash paid during the year for interest                                                                                       |    | $                             | —   |    |   | $ | 42,651 |    |

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Dais Analytic Corporation

Notes to Financial Statements

Years Ended December 31, 2010 and 2009

|   | 1. | We are currently holding preliminary discussions with parties who are interested in licensing, purchasing the rights to, or establishing a joint venture to commercialize certain applications of our technology. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | We are seeking growth capital from certain strategic and/or government (grant) related sources. In addition to said capital, these sources may, pursuant to any agreements that may be developed in conjunction with such funding, assist in the product definition and design, roll-out, and channel penetration of our products. As part of this step we will attempt to take advantage of key programs associated with the recently enacted American Recovery and Reinvestment Act of 2009. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                    | Years Ended December 31, |                               |
|-------------------------|-------------------------------|------------------------------------|
|                    | 2010                          |                               | 2009 |   |
|                    |                          |                               |
| Dividend rate           |                          |                               | 0 | % |   |   | 0 | % |
|                    |                          |                               |
| Risk free interest rate |                          |                               | 1.96% – 3.68 | % |   |   | 1.65% – 3.49 | % |
|                    |                          |                               |
| Expected term           |                          | 5 – 6.5 years |   |   | 5 – 10 years |   |
|                    |                          |                               |
| Expected volatility     |                          |                               | 97% – 112 | % |   |   | 92% – 106 | % |

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|   | • |   | Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
|--------|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   | Level 3 - Inputs that are both significant to the fair value measurement and unobservable. |
|--------|---------|--------|--------------------------------------------------------------------------------------------|

|              |    | Fair Value Measurements at December 31, 2010 |      |
|-------------------|--------------|---------------------------------------------------|-----------|
|              |    | Total carryingvalue                          |      |    | Quoted prices inactive markets(Level 1) |   |    | Significant otherobservableinputs(Level 2) |   |    | Significantunobservableinputs(Level 3) |   |
| Warrant liability |    |                                              | 3,958,318 |    |    |   | —   |    |    |   | —   |    |    |   | 3,958,318 |    |

|                              |         |                   |      |         |
|-----------------------------------|--------------|------------------------|-----------|--------------|
|                              |    | Warrant Liability |      |
| Balance at December 31, 2009 |    | $                      | 4,577,119 |    |
| Changes in fair value             |    |                   | (618,801  | )            |
|                              |    |                   |      |         |
| Balance at December 31, 2010 |    | $                      | 3,958,318 |    |
|                              |    |                   |      |         |

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|                          |    | December 31, |    |
|-------------------------------|--------------|-------------------|---------|
|                          |    | 2010              |    |    | 2009 |   |
| Furniture and fixtures        |    | $                 | 38,764  |    |    | $ | 33,530 |    |
| Computer equipment            |    |              | 64,305  |    |    |   | 57,344 |    |
| Demonstration equipment       |    |              | 104,871 |    |    |   | —   |    |
| Office and lab equipment      |    |              | 216,248 |    |    |   | 194,429 |    |
|                          |    |              |    |   |    |   |   |   |
|                          |    |              | 424,188 |    |    |   | 285,303 |    |
| Less accumulated depreciation |    |              | 276,277 |    |    |   | 265,920 |    |
|                          |    |              |    |   |    |   |   |   |
|                          |    | $                 | 147,911 |    |    | $ | 19,383 |    |

|                                        |    | December 31, |    |
|---------------------------------------------|--------------|-------------------|---------|
|                                        |    | 2010              |    |    | 2009 |   |
| Prepaid expenses                            |    | $                 | 31,070  |    |    | $ | 50,335 |    |
| Prepaid insurance                           |    |              | 29,948  |    |    |   | 31,699 |    |
| Prepaid services paid for with common stock |    |              | 172,118 |    |    |   | 21,537 |    |
| Prepaid loan costs                          |    |              | 25,000  |    |    |   | —   |    |
|                                        |    |              |    |   |    |   |   |   |
|                                        |    | $                 | 258,136 |    |    | $ | 103,571 |    |

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|                                |    | December 31, |    |
|-------------------------------------|--------------|-------------------|---------|
|                                |    | 2010              |    |    | 2009 |   |
| Accrued expenses, other             |    | $                 | 39,850  |    |    | $ | 127,768 |    |
| Accrued registration rights penalty |    |              | 5,000   |    |    |   | 41,000 |    |
| Accrued interest                    |    |              | 14,676  |    |    |   | 28,127 |    |
| Accrued interest, related party     |    |              | 157,683 |    |    |   | 13,502 |    |
| Accrued warranty costs              |    |              | 11,452  |    |    |   | —   |    |
| Contractual obligation              |    |              | 13,200  |    |    |   | 13,200 |    |
|                                |    |              |    |   |    |   |   |   |
|                                |    | $                 | 241,861 |    |    | $ | 223,597 |    |

|                                                                                                                                           |    | December 31, |                |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------------------|---------------------|
|                                                                                                                                           |    | 2010              |                |    | 2009 |   |
| Convertible notes payable; interest at 9%; $50,000 currently in default; collateralized by the Company’s patents and patent applications |    | $                 | 50,000              |    |    | $ | 150,000 |    |
| Convertible notes payable, related party; interest at 9%; collateralized by the Company’s patents and patent applications                |    |              | —   |    |    |   | 175,000 |    |
| Note payable, related party; 7% interest; unsecured; settled during 2010                                                                       |    |              | —   |    |    |   | 300,000 |    |
| Note payable, related party; interest at 10% per annum; due April 30, 2011                                                      |    |              | 1,000,000           |    |    |   | 1,000,000 |    |
| Note payable, related party; 10% interest; unsecured; due April 30, 2011                                                                  |    |              | 620,000             |    |    |   | 250,000 |    |
| Note payable; related party                                                                                                                    |    |              | 624                 |    |    |   | 624 |    |
|                                                                                                                                           |    |              |                |   |    |   |   |   |
|                                                                                                                                           |    |              | 1,670,624           |    |    |   | 1,875,624 |    |
| Less amounts currently due                                                                                                                     |    |              | 1,670,624           |    |    |   | 1,575,624 |    |
|                                                                                                                                           |    |              |                |   |    |   |   |   |
| Long-term portion                                                                                                                              |    | $                 | —   |    |    | $ | 300,000 |    |

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|                                            | Exercise Prices |                          |
|-------------------------------------------------|-----------------|-------------------------------|
|                                            | $0.25 per share |                          | $0.75 per share |   |
|                                            |            |                          |
| Fair value of underlying stock on date of award | $               | 0.09 – $0.19  |    | $ | 0.51 – $1.49 |    |
|                                            |            |                          |
| Dividend rate                                   |            | 0%                            |    |   | 0% |    |
|                                            |            |                          |
| Risk free interest rate                         |            | 1.65% – 2.58% |    |   | 2.20% – 2.49% |    |
|                                            |            |                          |
| Expected term                                   |            | 5 years                  |    |   | 5 years |    |
|                                            |            |                          |
| Expected volatility                             |            | 92% – 94%     |    |   | 95% – 96% |    |

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| February 2009  |    |   | 124,875   |    |
|----------------|--------------|--------|-----------|--------------|
| March 2009     |    |   | 999,000   |    |
| April 2009     |    |   | 416,250   |    |
| August 2009    |    |   | 124,875   |    |
|           |    |   | 1,665,000 |    |
|           |         |
| September 2009 |    |   | 162,500   |    |
| October 2009   |    |   | 412,500   |    |
|           |    |   | 575,000   |    |

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|                                  |    | CommonShares |       |         | Weighted AverageExercise Price |   |    | Weighted AverageRemainingContractual Term(in years) |         |    | AggregateIntrinsicValue |         |
|---------------------------------------|--------------|--------------|------------|--------------|-------------------------------------|--------|--------------|----------------------------------------------------------|--------------|--------------|-------------------------|--------------|
| Outstanding at December 31, 2008 |    |         | 8,606,556  |    |                                | $      | 0.26         |                                                |    |         | 7.58                    |    |    | $ | 38,294 |    |
| Granted                               |    |         | 4,190,058  |    |                                | $      | 0.21         |                                                |    |         |                    |         |    |   |   |   |
| Exercised                             |    |         | (25,000    | )       |                                | $      | 0.17         |                                                |    |         |                    |         |    | $ | 3,250 |    |
| Forfeited or expired                  |    |         | (472,732   | )            |                                | $      | 0.58         |                                                |    |         |                    |         |    |   |   |   |
|                                  |    |         |       |         |                                |   |         |                                                     |    |         |                    |         |    |   |   |   |
| Outstanding at December 31, 2009 |    |         | 12,298,882 |    |                                | $      | 0.26         |                                                |    |         | 7.64                    |    |    | $ | 1,052,839 |    |
| Granted                               |    |         | 2,970,000  |    |                                | $      | 0.30         |                                                |    |         |                    |         |    |   |   |   |
| Forfeited or expired                  |    |         | (371,125   | )       |                                | $      | 0.32         |                                                |    |         |                    |         |    |   |   |   |
|                                  |    |         |       |         |                                |   |         |                                                     |    |         |                    |         |    |   |   |   |
| Outstanding at December 31, 2010 |    |         | 14,897,757 |    |                                | $      | 0.25         |                                                |    |         | 7.19                    |    |    | $ | 946,754 |    |
|                                  |    |         |       |         |                                |   |         |                                                     |    |         |                    |         |    |   |   |   |
| Exercisable at December 31, 2010 |    |         | 13,834,563 |    |                                | $      | 0.25         |                                                |    |         | 7.02                    |    |    | $ | 940,594 |    |
|                                  |    |         |       |         |                                |   |         |                                                     |    |         |                    |         |    |   |   |   |
| Exercisable at December 31, 2009 |    |         | 11,951,021 |    |                                | $      | 0.24         |                                                |    |         | 7.61                    |    |    | $ | 1,034,594 |    |

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|                                       |    | Number ofOptions |       |         | WeightedAverageGrant DateFair Value |   |
|--------------------------------------------|--------------|------------------|------------|--------------|------------------------------------------|--------|
| Nonvested options - December 31, 2008 |    |             | 1,276,563  |    |                                     | $      | 0.37 |    |
| Granted                                    |    |             | 4,190,058  |    |                                     | $      | 0.31 |    |
| Forfeited                                  |    |             | (30,334    | )            |                                     | $      | 0.17 |    |
| Vested                                     |    |             | (5,088,426 | )            |                                     | $      | 0.30 |    |
|                                       |    |             |       |         |                                     |   |   |   |
| Nonvested options - December 31, 2009      |    |             | 347,861    |    |                                     | $      | 0.27 |    |
| Granted                                    |    |             | 2,970,000  |    |                                     | $      | 0.25 |    |
| Vested                                     |    |             | (2,244,663 | )       |                                     | $      | 0.25 |    |
| Forfeited                                  |    |             | (10,004    | )       |                                     | $      | 0.28 |    |
|                                       |    |             |       |         |                                     |   |   |   |
|                                       |         |             |
| Nonvested options - December 31, 2010      |    |             | 1,063,194  |    |                                     | $      | 0.25 |    |

|  Warrants                    |    | RemainingNumber Outstanding |       |    | Weighted AverageRemaining Life(Years) |   |    | Weighted AverageExercise Price |         |
|-----------------------------------|--------------|----------------------------------|------------|--------------|--------------------------------------------|--------|--------------|-------------------------------------|--------------|
| Warrants-Daily Financing          |    |                             | 197,055    |    |                                  |   | .98          |                           |    | $ | 0.55 |    |
| Warrants-Additional Financing     |    |                             | 428,637    |    |                                  |   | 1.70         |                           |    | $ | 0.40 |    |
| Warrants-Robb Trust Note          |    |                             | 50,000     |    |                                  |   | 1.42         |                           |    | $ | 0.55 |    |
| Warrants-Financing                |    |                             | 14,750,000 |    |                                  |   | 1.99         |                           |    | $ | 0.25 |    |
| Warrants-Placement Agent Warrants |    |                             | 793,641    |    |                                  |   | 2.26         |                           |    | $ | 0.25 |    |
| Warrants-Tangredi                 |    |                             | 3,000,000  |    |                                  |   | 2.25         |                           |    | $ | 0.36 |    |
| Warrants-Ehrenberg                |    |                             | 250,000    |    |                                  |   | 2.59         |                           |    | $ | 0.30 |    |
| Warrants-Consulting Agreement     |    |                             | 825,000    |    |                                  |   | 3.77         |                           |    | $ | 0.31 |    |
| Warrants-Note Conversions         |    |                             | 2,302,538  |    |                                  |   | 3.42         |                           |    | $ | 0.39 |    |
| Warrants-Stock Purchases 2009     |    |                             | 758,270    |    |                                  |   | 3.40         |                           |    | $ | 0.34 |    |
| Warrants-Mandelbaum               |    |                             | 50,000     |    |                                  |   | 3.33         |                           |    | $ | 0.19 |    |
| Warrants-Services                 |    |                             | 400,000    |    |                                  |   | 4.06         |                           |    | $ | 0.50 |    |
|                              |    |                             |       |         |                                  |   |         |                                |    |   |   |   |
| Total                             |    |                             | 23,805,141 |    |                                  |   |         |                                |    |   |   |   |

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|                                                             |    | For the Years Ended December 31, |                                                |
|------------------------------------------------------------------|--------------|---------------------------------------|-----------------------------------------------------|
|                                                             |    | 2010                                  |                                                |    | 2009 |   |
| Exercise price                                                   |    | $                                     | 0.25                            |    |    | $ | 0.25     |    |
| Market value of stock at end of period                           |    | $                                     | 0.29                            |    |    | $ | 0.30     |    |
| Expected dividend rate                                           |    |                                  | N/A                             |    |    |   | N/A     |    |
| Expected volatility                                              |    |                                  | 158% – 165%                         |    |    |   | 112% – 117% |    |
| Risk-free interest rate                                          |    |                                  | 0.61% – 0.82%                       |    |    |   | 1.70% – 2.20% |    |
| Expected life in years                                           |    |                                  | 2.00 – 2.58     |    |    |   | 3.00 – 3.58     |    |
| Shares underlying warrants outstanding classified as liabilities |    |                                  | 15,543,641                      |    |    |   | 15,543,641     |    |

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|                    |    | Total LiabilitiesAs previouslyReported |      |    | Change       |   |    | Total LiabilitiesAs Restated |         |    | Stockholders’ DeficitAs previouslyReported |         |         | Change |       |    | Stockholders’ DeficitAs Restated |   |
|-------------------------|--------------|---------------------------------------------|-----------|--------------|--------------|--------|--------------|-----------------------------------|--------------|--------------|-------------------------------------------------------|--------------|--------------|--------|------------|---------|---------------------------------------------|--------|
|                    |         |                                        |      |         |         |   |
| March 31, 2009     |    | $                                           | 4,599,317 |    |    | $      | 2,080,830    |                         |    | $            | 6,680,147                                             |    |    | $      | (4,246,075 | )  |                                        | $      | (2,080,830 | )  |   | $ | (6,326,905 | )  |
| June 30, 2009      |    | $                                           | 4,565,431 |    |    | $      | 2,425,223    |                         |    | $            | 6,990,654                                             |    |    | $      | (3,982,146 | )  |                                        | $      | (2,425,223 | )  |   | $ | (6,407,369 | )  |
| September 30, 2009 |    | $                                           | 3,968,231 |    |    | $      | 10,774,888   |                         |    | $            | 14,743,119                                            |    |    | $      | (3,158,106 | )  |                                        | $      | (10,774,888 | )  |   | $ | (13,932,994 | )  |
| December 31, 2009  |    | $                                           | 4,299,685 |    |    | $      | 4,577,119    |                         |    | $            | 8,876,8045                                            |    |    | $      | (2,678,939 | )  |                                        | $      | (4,577,1119 | )  |   | $ | (7,256,058 | )  |
| March 31, 2010     |    | $                                           | 5,117,253 |    |    | $      | 6,085,147    |                         |    | $            | 11,202,400                                            |    |    | $      | (3,058,161 | )  |                                        | $      | (6,085,147 | )  |   | $ | (9,143,308 | )  |
| June 30, 2010      |    | $                                           | 5,165,059 |    |    | $      | 4,250,053    |                         |    | $            | 9,415,112                                             |    |    | $      | (3,094,998 | )  |                                        | $      | (4,250,053 | )  |   | $ | (7,345,051 | )  |
| September 30, 2010 |    | $                                           | 5,147,657 |    |    | $      | 4,861,284    |                         |    | $            | 10,008,941                                            |    |    | $      | (3,428,140 | )  |                                        | $      | (4,861,284 | )  |   | $ | (8,289,424 | )  |

|                                      |   | Other Inc(Exp)As previouslyReported |     |    | Change |   |       | Other Inc (Exp)As Restated |   |   | Net LossAs previouslyReported |         |   | Change |       |    | Net (Loss) IncomeAs Restated |   |       | EPSAs previouslyReported |   |   | EPSAs Restated |         |
|-------------------------------------------|--------|------------------------------------------|----------|---------|--------|--------|------------|--------------------------------------|--------|--------|-------------------------------|--------------|--------|--------|------------|---------|----------------------------------------|--------|------------|-------------------------------|--------|--------|---------------------|--------------|
|                                      |   |                                     |     |    |   |   |       |                                 |
| For the Three Months Ended:               |   |                                     |     |    |   |   |       |                                 |   |   |                          |         |   |   |       |    |                                   |   |       |                          |   |   |                |         |   |   |   |   |   |   |   |   |
| March 31, 2009                       |   | $                                        | (156,161 | )  |   | $      | (146,858   | )                               |   | $      | (303,019                      | )       |   | $      | (648,786   | )  |                                   | $      | (146,858   | )                        |   | $      | (795,644            | )       |   | $ | (0.05 | )  |   | $ | (0.06 | )  |
| June 30, 2009                        |   | $                                        | (95,353  | )  |   | $      | (344,392   | )                               |   | $      | (439,745                      | )       |   | $      | (344,000   | )  |                                   | $      | (344,392   | )                        |   | $      | (688,392            | )       |   | $ | (0.04 | )  |   | $ | (0.04 | )  |
| September 30, 2009                   |   | $                                        | (203,771 | )  |   | $      | (9,438,212 | )                               |   | $      | (9,641,983                    | )       |   | $      | (436,927   | )  |                                   | $      | (9,438,212 | )                        |   | $      | (9,875,139          | )       |   | $ | (0.06 | )  |   | $ | (0.50 | )  |
| For the Year Ended December 31, 2009 |   | $                                        | (620,907 | )  |   | $      | (3,731,694 | )                               |   | $      | (4,352,601                    | )       |   | $      | (3,385,382 | )  |                                   | $      | (3,731,694 | )                        |   | $      | (7,117,076          | )       |   | $ | (0.17 | )  |   | $ | (0.36 | )  |
| For the Three Months Ended:               |   |                                     |     |    |   |   |       |                                 |   |   |                          |         |   |   |       |    |                                   |   |       |                          |   |   |                |         |   |   |   |   |   |   |   |   |
| March 31, 2010                       |   | $                                        | (46,504  | )  |   | $      | (1,508,027 | )                               |   | $      | (1,554,531                    | )       |   | $      | (520,038   | )  |                                   | $      | (1,508,027 | )                        |   | $      | (2,028,065          | )       |   | $ | (0.02 | )  |   | $ | (0.07 | )  |
| June 30, 2010                        |   | $                                        | (55,233  | )  |   | $      | 1,835,094  |                            |   | $      | 1,779,861                     |    |   | $      | (624,681   | )  |                                   | $      | 1,835,094  |                     |   | $      | 1,210,413           |    |   | $ | (0.02 | )  |   | $ | 0.04 |    |
| September 30, 2010                   |   | $                                        | (55,933  | )  |   | $      | (611,231   | )                               |   | $      | (667,164                      | )       |   | $      | (555,692   | )  |                                   | $      | (611,231   | )                        |   | $      | (1,166,923          | )       |   | $ | (0.02 | )  |   | $ | (0.04 | )  |

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|                                             |    | Year ended December 31, |                |
|--------------------------------------------------|--------------|------------------------------|---------------------|
|                                             |    | 2010                         |                |   | 2009 |   |
| Tax benefit at U.S. statutory rate               |    | $                            | (487,000            | ) |   | $ | (2,420,000 | ) |
| State income tax benefit, net of federal benefit |    |                         | (52,000             | ) |   |   | (258,000 | ) |
| Effect of non-deductible expenses                |    |                         | 1,000               |    |   |   | 1,000 |    |
| Employee stock-based compensation                |    |                         | 221,000             |    |   |   | 536,000 |    |
| Change in warrant valuation                      |    |                         | (210,000            | )  |   |   | 1,269,000 |    |
| Other adjustments                                |    |                         | 154,000             |    |   |   | 994,000 |    |
| Change in valuation allowance                    |    |                         | 373,000             |    |   |   | (132,000 | ) |
|                                             |    |                         |                |   |   |   |   |   |
|                                             |    | $                            | —   |    |   | $ | —   |    |

|                                           |    | December 31, |                |
|------------------------------------------------|--------------|-------------------|---------------------|
|                                           |    | 2010              |                |   | 2009 |   |
| Deferred tax assets (liabilities), current:    |    |              |                |   |   |   |   |   |
| Bonus payable                                  |    | $                 | 108,300             |    |   | $ | 108,300 |    |
| Accrued deferred compensation payable          |    |              | 428,300             |    |   |   | 386,300 |    |
| Stock warrant consideration and other          |    |              | 84,000              |    |   |   | 49,100 |    |
| Deferred license revenue                       |    |              | 30,900              |    |   |   | 32,400 |    |
| Valuation allowance                            |    |              | (651,500            | ) |   |   | (576,100 | ) |
|                                           |    | $                 | —   |    |   | $ | —   |    |
|                                           |    |              |                |   |   |   |   |   |
| Deferred tax assets (liabilities), noncurrent: |    |              |                |   |   |   |   |   |
| Deferred license revenue                       |    | $                 | 48,100              |    |   | $ | 77,400 |    |
| Depreciation                                   |    |              | 3,400               |    |   |   | 3,400 |    |
| Net operating loss carryforwards               |    |              | 7,644,600           |    |   |   | 7,261,000 |    |
| Valuation allowance                            |    |              | (7,596,100          | ) |   |   | (7,341,800 | ) |
|                                           |    | $                 | —   |    |   | $ | —   |    |

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