UNITED STATES

SECURITIES
AND EXCHANGE COMMISSION

WASHINGTON, D.C.20549



FORM 10-K

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



FOR THE FISCAL YEAR ENDED JUNE 30, 2012





NANOVIRICIDES, INC.

(Name of Business Issuer in Its Charter)



|NEVADA                                                         | 76-0674577                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)



135 WOOD STREET, SUITE 205, WEST HAVEN,
CONNECTICUT 06516

(Address of principal executive offices)



203-937-6137

(Issuer's telephone number, including area
code)



SECURITIES REGISTERED PURSUANT TO SECTION
12(b) OF THE ACT: NONE



SECURITIES REGISTERED PURSUANT TO SECTION
12(g) OF THE ACT:



|COMMON STOCK, PAR VALUE $.001 PER SHARE | NONE                                  
|--------------------------------------- | --------------------------------------
|                                        |                                       
|(Title of Class)                        | (Name of exchange on which registered)



Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.



Yes       
oNox



Indicate by a check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.



YesoNox



Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.



YesxNoo



Indicate by checkmark whether the registrant
has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months ( or for such
shorter period that the registrant was required to submit and post such files.

Yesx    Noo



Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.x



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

|Large
        accelerated filer ̈ | Accelerated filer ̈        
|-------------------------------- | --------------------------
|Non-accelerated filerx           | Smaller reporting Company ̈



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act.).



YesoNox



As of October 15, 2012 there were 155,612,133
shares of common stock of the registrant issued and outstanding.



The aggregate market value of the voting
stock held on December 31,2011 by non-affiliates of the registrant was $63,991,498 based on the closing price of $.61 per share
as reported on the OTC Bulletin Board on December 31, 2011 the last business day of the registrant's most recently completed fiscal
second quarter (calculated by excluding all shares held by executive officers, directors and holders known to the registrant of
five percent or more of the voting power of the registrant's common stock, without conceding that such persons are "affiliates"
of the registrant for purposes of the federal securities laws).











Table of Contents



TABLE OF CONTENTS



|PART I     |                                                                                                                  |   
|---------- | ---------------------------------------------------------------------------------------------------------------- | --
|           |                                                                                                                  |   
|Item 1.    | Description of Business                                                                                          | 3 
|Item 1A    | Risk Factors                                                                                                     | 48
|Item 1B    | Unresolved Staff Comments                                                                                        | 63
|Item 2.    | Properties                                                                                                       | 63
|Item 3.    | Legal Proceedings                                                                                                | 63
|Item 4.    | Mine Safety Disclosures                                                                                          | 64
|           |                                                                                                                  |   
|PART II    |                                                                                                                  |   
|           |                                                                                                                  |   
|Item 5.    | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 65
|Item 6.    | Selected Financial Data                                                                                          | 71
|Item 7.    | Management’s Discussion and Analysis of Plan of Operation and Results of Operations                              | 72
|Item 7A    | Quantitative and Qualitative Disclosures About Market Risk                                                       | 82
|Item 8.    | Financial Statements and Supplementary Data                                                                      | 82
|Item 9.    | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             | 82
|Item 9A(T) | Controls and Procedures                                                                                          | 83
|Item 9B.   | Other Information                                                                                                | 84
|           |                                                                                                                  |   
|PART III   |                                                                                                                  |   
|           |                                                                                                                  |   
|Item 10.   | Directors, Executive Officers, Promoters and Corporate Governance.                                               | 84
|Item 11.   | Executive Compensation                                                                                           | 85
|Item 12.   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   | 87
|Item 13.   | Certain Relationships and Related Transactions and Director Independence                                         | 88
|Item 14.   | Principal Accountant Fees and Services                                                                           | 89
|           |                                                                                                                  |   
|PART IV    |                                                                                                                  |   
|           |                                                                                                                  |   
|Item 15.   | Exhibits, Financial Statement Schedules                                                                          | 90
|           |                                                                                                                  |   
|SIGNATURES | 91                                                                                                              





2
















PART I



SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS



The information in this report contains
forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In
particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking
statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,”
“could,” “possibly,” “probably,” anticipates,” “projects,” “expects,”
“may,” “will,” or “should,” or other variations or similar words. No assurances can be given
that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s
current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.



Although these forward-looking statements
reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to
us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result,
our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors,
including those set forth below under the caption “Risk Factors.” For these statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not
unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations
regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, unless required by law.



ITEM I: BUSINESS



Organization and Nature of Business



The 2010-2012 Financial Year (FY) in
Review



NanoViricides, Inc. is a leading company
in the application of nanomedicine technologies to the complex issues of viral diseases. The nanoviricide® technology enables
direct attacks at multiple points on a virus particle. It is believed that such attacks would lead to the virus particle becoming
ineffective at infecting cells. Antibodies in contrast attack a virus particle at only a maximum of two attachment points per antibody.



Of note for the fiscal year ending June
30, 2012 is that the Company has made significant progress in advancing our pipeline. In March 2012, we held a pre-IND meeting
with the United States Food & Drug Administration (“FDA”)for our anti-influenza drug candidate, NV-INF-1. We obtained
valuable advice from the US FDA regarding the requirements for filing an Investigational New Drug (“IND”) for this
anti-influenza drug candidate.



Additional major events occurred after
the end of the year. In August, 2012, we announced that we were successful in developing an anti-influenza drug candidate that
was orally effective. We believe this may be the very first targeted nanomedicine that is available via the oral route. Oral availability
of FluCide would open up a much larger market than the injectable version. The Company intends to continue to develop the injectable
version for hospitalized patients. For severe, hospitalized cases of influenza, we are developing a concentrated solution that
is administered by “piggy-back” incorporation into the standard IV fluid supplement system that is commonly used in
hospitalized patients. In addition, we now plan to develop an oral version for out-patients and later also for pediatric patient
populations. This oral version will replace the injectable drug that we were developing out-patients.



Another major event also occurred very
recently. In September, 2012, we announced that the oral version of FluCide was also highly effective against a different strain
of influenza A, viz. H3N2, in addition to the influenza strain of H1N1 that we had been using for development, in the same lethal
animal challenge model. This is an important indication that our drug candidates against influenza are indeed broad-spectrum, i.e.
capable of combating most if not all influenza viruses. We will need to perform animal studies against a few additional strains
of influenza viruses in order to substantiate that this drug is indeed a broad-spectrum drug candidate. Additional studies in cell
cultures against different strains of influenza are also planned. All of these studies are necessary for filing an IND application.



This year, we also announced certain important
issuances of patents on the TheraCour® technology underlying our nanoviricides® drugs. Most importantly, a fundamental
patent on the polymeric micelles composition, structure and uses was issued in the USA with substantially broad claims. This validates
the novelty of our approach as well as our leadership position in the nanomedicines based on polymeric micelle technologies. All
of the patent applications have been filed internationally. To date 17 patent grants have occurred and additional grants continue
as the applications progress through review.



3







These events have been the result of continuing
progress and development work that the Company has been performing through several years. We had undertaken the challenge of developing
an orally available anti-influenza drug nearly three years ago. The chemistry work was already completed by June 2012 and the first
animal testing results became available in August, 2012.



We are also working on developing cGMP
(current Good Manufacturing Practices) manufacturing capabilities for clinical product. A group of private financiers that includes
our founder Dr. Anil Diwan has acquired an 18,000 sqft building on 4 acres with possibilities of expansion, in Shelton, CT, via
Inno-Haven, LLC, a company formed specifically for that purpose. The plans for renovating this building are being drawn up. The
project had several changes of scope as a result of the constraints in the current financial markets. A highly optimized floor
plan has now been developed and the Company is in the process of guiding the contract proposals and selection of architectural,
design and engineering teams. The building construction will be phased based on available financing, with priority for the cGMP
facility build-out. The Company is evaluating various options for the cGMP facility build-out. We intend to lease the building
from Inno-Haven, LLC. The terms of the lease have not been finalized. We believe that from the time that the proposals are accepted,
the cGMP facility can be ready in about one year to begin actual manufacturing. Soon thereafter, the Company will be able to make
cGMP-like material using the same processes as c-GMP material but prior to undergoing the FDA registration process. Such c-GMP-like
product can be used for clinical batches for human clinical studies in several countries around the world. The Company is currently
investigating all such options in order to expedite the timeline to entering human clinical trials. The Company intends to contract
out clinical batch fulfillments to outside contract manufacturers.



While we continue to make significant progress
towards human clinical trials and approval of our drug candidates, our programs have been hampered by the weak financial markets
that have resulted in substantial limitations on our capital-raising efforts. We have scaled down our programs, particularly the
cGMP manufacturing facility program, to meet with these financial challenges.



We have been aggressively expanding our
portfolio of virus targets and drug candidates every year since our inception in May, 2005. We began with drug candidates against
Influenza. We then shortly added a drug candidate against Rabies, one of the most difficult diseases to tackle. We started working
on Ebola/Marburg viruses (filoviruses) and developed drug candidates worthy of further drug development. Shortly thereafter, we
developed a drug candidate against Adenoviral Epidemic Kerato-conjunctivitis (EKC). In 2008, we added anti-HIV drug candidates
to our growing portfolio. In 2009, we improved upon our EKC drug candidates to develop new drug candidates that may be effective
potentially against most known viral diseases of the external eye. Most of these viral diseases are caused by a wide variety of
adenoviruses and herpes simplex viruses. We also developed new drug candidates against the herpes viruses (HSV-1 and HSV-2), for
the treatment of recurrent HSV skin infections, such as cold sores and genital warts. Then last year we added drug candidates effective
against Dengue viruses to our pipeline. In 2012 we developed an oral version of our anti-influenza drug candidate, Flucide. Thus,
in just about five years we have developed a very broad pipeline of drug candidates. We believe that we will have clinically relevant
drug candidates in many, if not all, of these disease areas.



Last year we also conducted an anti-HIV
study in the standard humanized mouse model in the HIVCide program. In this model, the immune system of the mouse is replaced by
human immune system. Then HIV infection is given. HIV infects the human immune system. The antivirals are then given and tested
for their effect on the interaction of HIV with the implanted human immune system. In the previous anti-HIV study, we had found
that three different unoptimized anti-HIV nanoviricides exhibited extremely strong effectiveness that was equal to or better than
a three drug HAART cocktail (highly effective antiretroviral treatment) in this animal model. We have since developed better optimized
ligands to attack the HIV virus particle. In order to find the best ligand, we reduced the amount of ligand attached to the polymer
chain in this new study. We were able to select the best nanoviricide anti-HIV ligand in the new study, which appears to be better
than all the ligands tested in the previous study. This nanoviricide’s effect was still equal to or better than the same
3 drug HAART cocktail, although we had expected a substantially reduced effect.



What is more, the new anti-HIV nanoviricide
drug candidate continued to maintain HIV-1 viral load suppression for at least 28 days after last drug dosing in this recent study.
So we believe that an intermittent therapy against HIV/AIDS is feasible with nanoviricides. We believe that such a therapy would
allow patients to achieve nominally HIV-free status, and have a normal life, for long periods without drugs. We are now further
optimizing the HIVCide drug candidates. In effect, we believe that HIVCide would enable a “functional cure” for HIV,
although much work needs to be done as this program matures into a clinical candidate.



Nanoviricide technology is built on the
TheraCour® polymeric micelle platform technology. The design of these materials is like building blocks. We can select components
to achieve desired effects. This tailor-made customizability has many implications. It allows us to (1) rapidly create a new drug
against a different virus; (2) rapidly develop a drug with desired length of time for which its effect should persist; (3) quickly
develop new drugs with different routes of administration; among many other benefits.



We had always suspected that the polymeric
nature of nanoviricides would enable a long drug effectiveness time frame, thus enabling infrequent dosing. We have indications
now that this is very likely true, from both FluCideTM and HIVCideTM programs. We have observed sustained antiviral effects
for a long time after last drug administration in various animal model studies.



4







Infrequent dosing would translate into
ease of patient compliance. Patient compliance is a major issue for all antiviral drug therapies, and particularly for HIV/AIDS.



We have been able to develop drugs using
many different routes of administration with very little development time and effort.



Initially we focused on developing only
injectable formulations since these afford the maximum bioavailability of the drug inside the body. We have also developed eye
drop solutions against EKC in a very short time frame.



A skin cream appears to be the right formulation
for the treatment of oral and genital warts caused by HSV-1 and HSV-2. Last year we had already observed that our drug candidates,
in the solution form, were effective in cell cultures against at least two different strains of HSV-1 in two different laboratories.
We needed to make skin creams for conducting animal studies and selected different building blocks for our backbone polymer, and
built new drugs against HSV this year. The skin cream drug candidates against HSV were developed within a matter of weeks. The
formulation development itself took only a few days. In contrast, many drug development companies spend years in formulations development.



This year we have successfully developed
what may be the first ever orally available targeted nanomedicine, in our Flucide program.



We demonstrated that we can rapidly develop
different formulations because of the inherent strength of the nanoviricide platform technology. The technology also enables us
to develop nasal sprays and bronchial aerosols. We plan to develop the appropriate formulations as necessary.



We have limited our expenditures on socially
conscious projects such as “Neglected Tropical Diseases” (NTD’s), and “Bio-defense” projects to the
extent that participatory funding from third parties is available. To this end, we attempt to obtain grants and contracts financing
from government and non-government sources. We will continue to work on these programs as time and resources permit. In addition,
we continue to develop novel technologies such as ADIFTM (“Accurate-Drug-In-FieldTM”) which may possibly
represent one of the best scientific approaches against manmade and natural novel disease agents. Outbreaks of natural novel viral
diseases, such as SARS will continue to occur. At present, there is no feasible therapeutic intervention for outbreaks of novel
viruses, such as new coronavirus outbreak reported recently.



This year we continued to raise financing
successfully, but at a much slower pace than last year. To date, Seaside 88, LP (“Seaside”), has continued its investment
in the Company and has invested an aggregate of $20M thus far. On June 28, 2012 Seaside invested an additional $5M with its agreement
to purchase the Company’s $0.001 par value Series C Convertible Preferred Stock. With this funding, and our continuing controlled
rate of expenditure, as of June 30, 2012, we had $14,274,985 in cash and cash equivalents on hand. This cash reserve now enables
us to start moving our drug candidates forward in the US Food and Drug Administration (“FDA”) and International regulatory
approval processes.



We now have six commercially significant
active, drug development programs: (1)Oral FluCideTM, against all Influenzas, (2)A Piggy-back version of Flucide for
hospitalized patients, (3) nanoviricide eye drops against adenoviral EKC and herpes keratitis, (4) HIVCideTM-I against HIV/AIDS,
(5) HerpeCideTM-I skin cream formulation for herpes cold sores and genital warts, and (6) DengueCideTM, a broad spectrum
nanoviricide designed to attack all types of dengue viruses and expected to be effective in the Severe Dengue Disease syndromes
including Dengue Hemorrhagic Fever (DHS) and Dengue Shock Syndrome (DSS). We continue to achieve very strong performance in the
testing of these drug candidates. All of our biological testing is conducted by third parties.



We have continued to achieve significant
milestones in our drug development activities. All of our drug development programs are presently at pre-clinical stage. We continue
to test several drug candidates under each program even though we may achieve extremely strong results with some of the candidates.



Our strategy is to minimize capital expenditure.
We therefore rely on third party collaborations for the testing of our drug candidates. We continue to engage with our previous
collaborators. In addition, towards the end of this year, we engaged Biologics Consulting Group, Inc., to help us with the FDA
regulatory submissions. We are also engaged with Australian Biologics Pty, Ltd to help us with clinical trials and regulatory approvals
in Australia. We believe that cGMP-like manufactured product is acceptable for entering human clinical trials in Australia.



Because of the extremely high effectiveness
of the nanoviricides drug candidates in animal studies, we believe that a small pilot plant with kilogram production scale cGMP
capability should be sufficient to take us through human clinical studies. This is a strategic benefit resulting from our engaging
into further optimization of the influenza candidates towards very high effectiveness levels. A smaller plant means lower capital
expenditures. The Company continues to seek cash-preserving means of financing for the new lab and cGMP capability. To this end,
we plan to apply for Small Business Administration (“SBA”) loans as well as other loans and alternate financing vehicles
from investor groups. Our founder, Dr. Anil Diwan, has agreed to provide certain personal guarantees for such transactions. We
may also raise additional equity-based financing as needed.



5







The Company reports summaries of its studies
as the data becomes available to the Company, after analyzing and verifying same, in its press releases.



In July-August 2011, we reported on the
anti-HIV studies that were designed to discriminate the comparative effectiveness of different ligands. We reported that our lead
anti-HIV candidate achieved anti-HIV efficacy equivalent to a HAART (highly active anti-retroviral therapy) triple drug cocktail
in this recently completed animal study. Treatment with this lead anti-HIV nanoviricide reduced HIV levels and protected the human
T cells (CD4+/CD8+) to the same extent as treatment with the HAART cocktail. The three drug HAART cocktail used for comparison
in this study is one of the combination therapies recommended for initial therapy in humans. No evidence of drug toxicity was observed
in the case of nanoviricide drug candidates. We later reported that this lead anti-HIV drug candidate achieved a long term anti-HIV
effect with a much shorter dosing regimen and a markedly lower total drug dose than the HAART drug cocktail therapy in a recent
animal study. The antiviral effect of the anti-HIV nanoviricide (“HIVCideTM”) continued throughout the 48 days
of study even though HIVCide dosing was discontinued after only 20 days. The clinical benefit of HIVCide was found to be sustained
for at least four weeks after the last drug dose. Treatment with the lead anti-HIV nanoviricide both (1) reduced the HIV viral
load and (2) also protected the human T cells (CD4+,CD8+), equally well as compared to treatment with the three-drug HAART cocktail,
at 24-days as well as at 48-days, even though the HIVCide treatment was stopped at 20 days. The lead candidate is now undergoing
further optimization.



A long and sustained effect of HIVCide
would lead to improved patient compliance, which is a sought after goal in HIV therapy. With this new study, we believe that we
are close to a “Functional Cure” of HIV wherein the patient can take treatment until the viral load is undetectable
and then stop treatment until an episode of virus reawakening occurs.



In September 2011, we announced that we
have selected a clinical candidate, now designated NV-INF-1, for FDA submission in our highly successful FluCideTM anti-influenza
therapeutics program. The Company is now developing certain additional information on NV-INF-1, with input from its FDA consultants,
for the pre-IND application to the FDA. The Company is planning on two separate indications for NV-INF-1: High strength dosage
form for hospitalized patients with severe influenza, and a single course therapy for the out-patients with less severe influenza.
We are currently working on putting together the FluCide information in a pre-IND application to the US FDA.



In July 2011, we retained the Biologics
Consulting Group to help us with our regulatory filings. This led to our pre-IND meeting request to the US FDA in December, 2011,
and a pre-IND meeting with the US FDA in March, 2012.



In July 2012, we retained Australian Biologics
Pty. Ltd., a regulatory affairs consulting firm, to coordinate the regulatory review and approval to conduct the first human trials
in Australia for FlucideTM, the Company’s broad-spectrum anti-influenza drug. Australian Biologics will also facilitate
clinical trial site(s) selection and development of the clinical trials agreements. Dr. Jim Ackland, the Manager of Australian
Biologics Pty, Ltd, has extensive experience in this field. Prior to becoming managing director of this company, he was Vice-President,
West Coast and Asia Pacific operations for the Biologics Consulting Group, the Company’s US FDA regulatory affairs consulting
group. In the 1990’s, he was the Head of Regulatory Affairs, Vaccines, for the CSL Group in Australia. The CSL Group is a
global, specialty biopharmaceutical company that researches, develops, manufactures and markets products to treat and prevent serious
human medical conditions.



In August 2012, we reported that oral effectiveness
of anti-influenza FluCide drug was demonstrated in a lethal animal model. Certain anti-influenza drug candidates under our FluCideTM
program, when given orally, were nearly as effective as when administered as IV injections. Two different anti-influenza drug candidates
were tested in Oral vs. IV comparison, and both of them showed similar results that indicated strong oral effectiveness. The results
clearly demonstrated that oral administration of both of these FluCide drug candidates resulted in substantially superior animal
protection compared to oseltamivir (Tamiflu®), a standard of care for influenza at present. The studies involved the same highly
lethal animal model the Company has continued to use for its influenza drug development program.



One of the FluCide drug candidates, when
administered orally, enabled the animals to survive as long as 347.4±4.6 hrs. (14.5 days), and when given as an injectable,
it allowed the animals to combat the lethal influenza infection for 376.8±7.5 hrs. (15.7 days). Another drug candidate (with
a different anti-viral ligand), when given orally, resulted in the animals surviving for as long as 301.3±5.2 hrs. (12.6
days), and when given as a tail-vein injection, for 349.0±3.9 hrs. (14.5 days). For comparison, untreated control animals
died in 119.5±1 hrs. (5 days), and oseltamivir (Tamiflu®) treated animals died within just 181.7±4.6 hrs. (7.6
days).



The survival data clearly showed that oral
as well as IV administration of FluCide drug candidates was substantially superior to oseltamivir. In addition, they showed that
FluCide drug candidates when given orally had substantial efficacy, almost matching the effectiveness of the injectable form given
at 0.3X of the oral dosage level.



One of the FluCide drug candidates, when
administered orally, resulted in 1.30 log reduction (or 20X reduction) in lung viral load and matched the viral load reduction
on the same drug candidate given as an IV injection. Another drug candidate resulted in 1.23 log viral load reduction when given
orally and 1.31 log viral load reduction when given as an injectable. In contrast, oseltamivir (Tamiflu®, given orally at 40mg/kg/d)
resulted in only 0.6 log viral load reduction (or only 4X reduction) compared to negative controls. These were the results of lung
viral load measured at 108 hours post-infection (hpi). Further, at 180 hpi, the lung viral load remained controlled at about the
same level as at 108 hpi with the nanoviricide® drug candidates. In contrast, lung viral load in the oseltamivir treated mice
increased to the same level as the negative control (infected untreated) animals prior to their death and the oseltamivir group
exhibited a survival of only 182±4 hours.



6







The number of lung plaques and plaque areas
(resulting from the influenza virus infection) also were consistent with the data from the lung viral load, and were minimal in
the case of the nanoviricide drug candidates whether given as IV or orally. Oseltamivir treatment did not protect the lungs of
infected animals anywhere close to the protection afforded by the FluCide drug candidates.



These data clearly demonstrated that both
oral and IV treatment with nanoviricide drug candidates protected the lungs of the mice infected with influenza virus equally well.
It is also clear that this lung protection was the result of the substantial decrease in the lung viral load. In addition, they
show that FluCide drug candidates when given orally had substantial efficacy, almost matching the effectiveness of the injectable
form given at 0.3X of the oral dosage level.



In addition to the antiviral effects, the
oral FluCide drug candidates also led to generation of a strong antiviral antibody response. Two different anti-influenza drug
candidates were tested in Oral vs. IV comparison. One of the FluCide drug candidates, when administered orally, resulted in 1866±90
micro-g/ml-plasma of anti-influenza antibody, and 1258±59 when administered as IV injections. Another FluCide candidate,
when given orally, resulted in 1491±37 ug/ml plasma of anti-influenza antibody, and 1151±53 when administered as
IV injections. The untreated infected animals had 190±22 ug/ml antibody response, which was the weakest of all, as expected.
Of significance, oseltamivir (Tamiflu) resulted in only 950±64 ug/ml level of antibody response, which was far less than
the two oral FluCide groups (p-value <0.0003), and also substantially less than the two IV FluCide groups (p-value <0.04).
These p-values were determined for a comparison of FluCide groups against the oseltamivir group using the most stringent parameters,
viz. two-tailed, paired, t-test. A smaller p-value indicates a greater confidence that the difference in observations cannot be
a result of pure chance. These data also indicated that the antibody response was stronger when FluCide was given orally rather
than as IV injection.



The generation of a strong antibody response
is important. We believe that the strong reduction in viral load caused by FluCide treatment allows the immune system to function
normally and generate appropriate antibodies. A strong antibody response implies that the FluCide drug candidates may also be useful
as prophylactic therapy of uninfected health care workers and close associates of a patient in addition to treatment of infected
patients.



All of these data also clearly demonstrated
that both injectable and oral FluCideTM candidates were superior to oral oseltamivir (Tamiflu®, Roche), a current standard
of care for influenza, in all parameters evaluated.



No adverse effects were found, indicating
that the FluCide dose could be increased further to achieve much greater levels of effectiveness.



The oral FluCide candidate development
was the result of chemistry optimization program that the Company has been working on.



In September 2012, we announced that the
oral FluCideTM drug candidates demonstrated dramatically improved survival in animals administered a lethal dose of the H3N2
influenza A virus. Animals treated with the oral anti-influenza nanoviricide drug candidates survived for much longer as compared
to Tamiflu® treated animals.



In this H3N2 infection study, Animals treated
with the best of the oral FluCideTM nanoviricide drug candidates survived 15.6 days while the animals treated with oral Tamiflu
survived only 9.6 days. The control animals died within 5 days. The Company has previously reported that animals treated with these
same oral anti-influenza nanoviricides protected mice infected with the H1N1 influenza A virus and were similarly substantially
superior to oral oseltamivir (Tamiflu).



This is the first demonstration of efficacy
of the Company’s FluCide drug candidates against a completely unrelated type of influenza A virus (viz. H3N2) in contrast
to the H1N1 Influenza A virus that the Company has used for its recent development work leading to its pre-IND application with
the US FDA. H3N2 influenza virus is one of the multiple sub-types of influenza A that cause seasonal epidemics. According to the
CDC, influenza causes approximately 36,000 deaths every year in the U.S. alone. The Hong Kong Flu pandemic of 1968-1969, which
killed an estimated one million people worldwide, was caused by a variant strain of H3N2. The Company believes an orally administered
nanoviricide that protect against multiple influenza virus sub-types would be effective in season after season of influenza epidemics.
Such a highly effective, broad-spectrum anti-influenza drug is widely anticipated to be highly successful.



The Company believes that the anti-influenza
drug candidates it has developed are broad-spectrum, i.e. they should work against most if not all of influenza viruses. This is
because, in spite of mutations and antigenic drift, all influenza viruses bind to the same cell surface receptor called sialic
acid, and the Company has developed small chemical ligands that mimic this receptor, to attack the influenza viruses. These ligands
are chemically attached to the Company’s polymeric micelle backbones that mimic the cell membrane, to create the nanoviricides.
The Company has previously shown effectiveness of its very early anti-influenza drug candidates against two different strains of
H5N1 Bird Flu virus in cell culture studies. The Company has since then improved the ligands as well as the chemistries as reported
from time to time.



7







The Company intends to develop data about
effectiveness of its drug candidates against certain unrelated influenza A viruses using both cell culture studies and animal models
in a reasonable manner. These data will be needed as part of the IND application that the Company is working on. An IND application
will be required for the Company to enter into human clinical trials.



Previously, in June 2010, the Company reported
successful studies in two different cell culture models of dengue virus type 2 infection. These studies were conducted at the Prof.
Eva Harris lab at the UC Berkeley. Our results were later confirmed and extended to animal studies.



The Company reported that its anti-Dengue
drug candidates demonstrated significant protection in the initial animal survival studies of Dengue virus infection, in an animal
study protocol modeled to simulate the ADE syndrome. The best nanoviricide drug candidates demonstrated 50% animal survival in
this uniformly lethal mouse model. The studies were performed in the laboratory of Dr. Eva Harris, Professor of Infectious Diseases
at the University of California, Berkeley (UC Berkeley).



Based on these data, the Company believes
that it is feasible to develop a single nanoviricide drug against all types of dengue viruses that circumvents the primary issue
of antibody-dependent enhancement (ADE) of dengue virus infection. ADE is thought to result in severe dengue disease syndromes
such as dengue shock syndrome (DSS) and dengue hemorrhagic fever (DHF).



In June, 2010, we also reported that our
anti-HIV drug candidates demonstrated efficacy in the recently completed cell culture studies using two distinctly different HIV-1
isolates. These studies were performed in the laboratory of Carol Lackman-Smith at the Southern Research Institute, Frederick,
Maryland. These results corroborating our previous findings in Animal Studies. The Company had reported that its best nanoviricide
drug candidate against HIV was more than 25 times superior to a three drug combo anti-HIV cocktail based on biomarker test response
in all parameters tested. The parameters included improvement in human T cell populations in the animal model and reduction in
HIV viral load. The Company has since performed additional studies to optimize the HIV binding ligand and has found ligands that
are superior to the one that yielded these strong results. The Company now plans to deploy this new anti-HIV ligand connected to
the full strength polymeric micelle that we have also optimized as a new anti-HIV nanoviricide drug candidate. We plan to test
this optimized anti-HIV drug candidate in animal studies. Anti-HIV studies are extremely expensive. As such, the Company’s
HIVCide program has been slowed down with the current slow financial markets.



In August 2010, we reported that our anti-HSV
drug candidates exhibited almost complete inhibition of herpes simplex virus HSV-1 in cell culture studies conducted in Professor
Ken Rosenthal lab at the Northeastern Ohio Universities Colleges of Medicine and Pharmacy. These studies employed the H129 strain
of herpes simplex virus type 1 (HSV-1). H129 is an encephalitic strain that closely resembles a clinical isolate; it is known to
be more virulent than classic HSV-1 laboratory strains.



In November 2010, the Company reported
that its FluCideTM drug candidates demonstrated dramatically improved survival in animals administered a lethal dose of influenza
virus. Animals treated with all of the different influenza nanoviricide drug candidates survived for dramatically longer periods
as compared to Tamiflu® treated animals. Animals treated with the best of the optimized FluCide nanoviricide drug candidates
survived greater than twice as long (18.1 days) as opposed to the animals treated with Tamiflu (only 7.8 days). In a previous study,
the Company had reported that animals treated with the then best anti-influenza nanoviricides survived for as long as 13.9 days
in the same animal model. These drug candidates also resulted in a dramatic reduction in viral load within the lungs of animals
infected with a lethal dose of H1N1 influenza virus. The most effective FluCide candidate demonstrated a fifteen-fold (15X) greater
viral load reduction as compared to Tamiflu, and a thirty-fold (30X) greater viral load reduction as compared to untreated animals.
Tamiflu demonstrated a viral load reduction of only twofold (2X) compared to the untreated animals in this high infection, lethality
study. We then engaged in chemistry optimization studies to help us with the FDA regulatory requirements.



In March through May 2011, the Company
reported that further chemistry optimization led to dramatically improved antiviral efficacy with its optimized FluCideTM
drug candidates in its most recent animal study. In the influenza mouse lethal infection model, animals treated with one of the
optimized FluCideTM nanoviricide drug candidates survived beyond the stated full duration of study (21 days), and those treated
with two additional drug candidates survived almost the full duration of the study. Animals in these three groups survived significantly
longer (20.2 to 22.2 days) as compared to the animals treated with Oseltamivir (Tamiflu®) only 8.3 days. In addition, the post-infection
treatment with these optimized FluCideTM drug candidates resulted in dramatic reduction in the number of lung lesions that
are caused by a lethal influenza virus infection. Four days post virus infection, animals treated with three of the optimized FluCideTM
nanoviricide drug candidates exhibited greater than 95% reduction in the number of lung lesions as compared to the infected yet
untreated control animals (p-values < 0.001). In contrast, animals treated with Oseltamivir (Tamiflu®, Roche) showed only
a 50% reduction. In another significant finding, no increase in the number or size of the lung lesions was observed over the entire
duration of the study in the FluCideTM-treated animals. This was not the case for the Oseltamivir-treated animals. This demonstrated
that treatment with FluCide drug candidates provided clear and strong protection against lung damage caused by the severe influenza
infection. In addition, in this study, these optimized FluCideTM drug candidates achieved 1,000-fold reduction in the levels
of infectious virus in the lungs of animals with a lethal level of influenza virus infection. The amount of infectious virus in
the lungs of the infected animals treated with three of the optimized FluCideTM nanoviricide drug candidates was reduced by
greater than 1000-fold as compared to the infected untreated control animals (p-values < 0.001), four days after virus infection.
In contrast, animals treated with Oseltamivir (Tamiflu®, Roche) showed less than a 2-fold reduction in lung viral load at the
same time point. This indicated a 500-fold greater reduction in viral load by FluCide drug candidates over Oseltamivir. Of great
clinical significance is the fact that 2 of the optimized FluCideTM drug candidates maintained this greatly reduced lung viral
load at 7, 13 and 19 days after virus infection in this 21 day study. Thus, treatment with the optimized FluCide drug candidates
appeared to protect against the complete cycle of infection, virus expansion and spread of infection in the lungs that follows
the initial virus infection. This was not the case for the Oseltamivir-treated animals. Animals treated with Oseltamivir (Tamiflu®,
Roche) showed less than a 2-fold reduction in lung viral load at 4 days and the viral load was increased at 7 days to the same
level as that found in the infected, untreated control animals shortly before their death.



8







In September 2011, we announced that we
have selected a clinical candidate, designated NV-INF-1, for FDA submission in our highly successful FluCideTM anti-influenza
therapeutics program. The Company submitted a pre-IND application to the FDA for this clinical candidate and held a pre-IND meeting
with the US FDA in March, 2012. In addition, the Company is planning a high strength “ piggy-back infusion dosage form for
hospitalized patients with severe influenza. The Company will continue the development of these two drug candidates towards an
IND, based on the guidance it received in the first pre- IND meeting.



The studies of biological testing of materials
provide information that is relatively easy to understand and therefore readily reported. In addition, we continue to engage in
substantial work that is needed for the optimization of synthesis routes and for the chemical characterization of the nanoviricide
drug candidates. We also continue to work on improving the drug candidates and the virus binding ligands where necessary. We continue
to work on creating the information needed for the development of controlled chemical synthesis procedures that is vital for developing
c-GMP manufacturing processes.



This year we have continued to improve
our laboratory infrastructure, adding several new instruments and further chemistry capabilities. We have purchased substantial
amounts of laboratory equipment for the characterization of our nanomaterials. We are acquiring the capabilities for synthesis,
small scale-up, and production of our drug candidates. These are needed for the ensuing development work towards the goal of filing
an IND application.



In September 2011, we announced the acquisition
by Inno-Haven, LLC of a 18,000 sqft building on 4 acres with possibility of expansion in Shelton, CT. Inno-Haven LLC, a special
purpose company formed to acquire the facility, completed the purchase on August 31, 2011. Financing for the acquisition by Inno-Haven
was provided by certain private investors that included Anil R. Diwan, PhD. Dr. Diwan is President and Chairman of the Company
and Managing Member of Inno-Haven. Dr. Diwan’s part of the financing came from his personal savings, personal borrowings,
and a sale of some of his shares of NanoViricides, Inc. received as a founder. In October, 2012, Dr. Diwan completed the programmed
sale of the NanoViricides stock that he had obtained as a founder. The Company had agreed to this stock sale in order to help partially
offset the costs for the acquisition of a facility and of architectural and engineering design of its renovation. Additionally,
Dr. Diwan has agreed to provide personal guarantees, as needed, for certain additional contemplated transactions. The Company has
previously announced that it had determined that this financing approach provided the best value for the Company and its shareholders.
The Company anticipates that it will be leasing the laboratory facilities and cGMP production facility from Inno-Haven, for the
cGMP manufacture of clinical batches of its nanoviricides® drug candidates against various viral diseases. No lease has been
signed yet.



We are also making progress in development
of our cGMP manufacturing capability. The Company announced in May 2012 that it had appointed Mr. Andrew Hahn to help with the
overall design and construction of its laboratory and cGMP pilot production facility. Mr. Hahn recently retired as the Senior Director
of Engineering, Pharmaceutical Facilities, Global Engineering, at the Bristol-Myers-Squibb Company Worldwide Medicines Group (BMS).
He has almost 30 years of experience in architecture, design and project management in the creation of new and refurbished facilities
at Bristol-Myers Squibb Company.



In this year, as in the previous year,
we have also made significant strides in achieving exposure for the Company and its technologies. We were invited to present at
OneMedForum New York 2011 on June 23rd-24th, 2011 at The Roosevelt Hotel in New York City. We also presented at the Rodman
& Renshaw Annual Global Investment Conference in New York City on September 13, 2011. The Company’s President, Dr. Anil
R. Diwan, presented our technologies and achievements at the French Biotech Tour Infectious Diseases Meeting held at the MIT Faculty
Club in Boston, MA, on September 21, 2011. Dr. Diwan was also invited to participate in the panel on “Nanomedicine and Nanodiagnostics
- Innovation, Regulation and Financing.” at the 10th Annual NanoBusiness Conference/NanoManufacturing Summit held at the
Seaport World Trade Center in Boston, MA, on September 26, 2011. Dr. Diwan, was also invited to present at the “Partnership
Opportunities in Drug Delivery (PODD)” Conference held in Boston, MA, on October 4, 2011, in the “Track 2: Large Molecules
and Biologics Delivery”. He was also invited to present an overview of the Company at the 14th Annual BIO CEO and Investor
Conference held at the Waldorf-Astoria Hotel in New York City on February 13, 2012. He was also invited to present an overview
of the Company at the 21st Annual Meeting of the New York Biotechnology Association (NYBA) in New York City on May 2, 2012.



We believe that these presentations, resulting
exposure, and related meetings and discussions have been extremely beneficial to the Company. This exposure as well as our continuing
successes in the drug development efforts have enabled us to achieve significant amounts of financing this year.



9







In addition, the Company announced on October
24, 2011, that information about its novel, proprietary anti-virus platform technology has been published in the book “Bionanotechnology
II: Global Prospects.” The chapter entitled “Nanoviricides - A Novel Approach to Antiviral Therapeutics” provides
an in-depth presentation of the NanoViricides platform technology.



The Company also announced in May, 2012
that a fundamental patent, on which the nanoviricides® technology is based, is due to be issued in the USA on May 8, 2012.
The US Patent (No. 8,173,764) is granted for "Solubilization and Targeted Delivery of Drugs with Self-Assembling Amphiphilic
Polymers." It was issued on May 8, 2012. The patent term is expected to last through October 1, 2028, including anticipated
extensions in compensation for time spent in clinical trials. This US Patent has been allowed with a very broad range of claims
to a large number of families of chemical structure compositions, pharmaceutical compositions, methods of making the same, and
uses of the same. The disclosed structures enable self-assembling, biomimetic nanomedicines. NanoViricides, Inc. holds exclusive,
perpetual, worldwide licenses to these technologies for a broad range of antiviral applications and diseases. The other national
and regional counterparts of the international Patent Cooperation Treaty (“PCT”) application number PCT/US06/01820,
which was filed in 2006,. have issued as a Singapore National Patent Publication, a South African patent, and also as an OAPI
regional patent covering Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Republic of Congo, Cote d'Ivoire, Equatorial
Guinea, Gabon, Guinea, Guinea Bissau, Mali, Mauritania, Niger, Senegal, and Togo. It has also issued as a granted patent in New
Zealand, China, Mexico, and Japan. Estimated expiry dates range nominally from 2026 to 2028 with various extensions accounting
for delays in clinical trials. Additional issuances are expected in Europe, and in several other countries around the world.

In addition, the counterparts of the international
PCT application PCT/US2007/001607 have issued as a granted patent in New Zealand, OAPI, Pakistan, Australia, South Africa, and
Mexico to date. Additional issuances are expected in Europe, USA, and in several other countries around the world. This patent
application teaches antivirals based on the TheraCour polymeric micelle technologies, their broad structures and compositions of
matter, pharmaceutical compositions, methods of making the same, and their uses. The nominal expiry dates are expected to range
from 2027 to 2029.



We have taken an important step towards
improving our corporate governance this year. On June 22, 2012, we appointed Mr. Stanley Glick, CPA, as an independent Director
of the Company and the Chairman of its Audit Committee. Mr. Glick has over forty years of experience in his long career of providing
auditing, accounting, tax, and management advisory services, to clients in various industries. Mr. Glick has been a member of several
Boards of Directors for not-for-profit organizations in the Westport, CT area. In particular, he has served as a Director and member
of Audit Committee of “A Better Chance” of Westport, CT, from 2000 to 2005. From 1977 until present, Mr. Glick has
managed an independent practice as a Certified Public Accountant in Connecticut and New York States. Prior to forming his own CPA
firm, Mr. Glick was employed by local and regional CPA firms where he performed and supervised audits and financial reporting.
Mr. Glick is a member of the American Institute of Certified Public Accountants, The Connecticut Society of Certified Public Accountants,
and the New York State Society of Certified Public Accountants. He holds a Bachelor of Business Administration degree in Accounting
from Baruch College of Business (now Baruch College of the City University of New York). Mr. Glick is married and lives in Trumbull,
CT.



The Company has been successful in raising
necessary funds this year as well as last year, albeit at a slower pace.



In July 2011, the Company consummated
a closing with Seaside 88, LP, a Florida limited partnership (“Seaside”), on Seaside’s purchase of an additional
$2.5M of the Company’s Series B Convertible Preferred Stock. This purchase was subsequent to the April 19, 2011 closing
of $2.5M. On April 19, 2011, NanoViricides entered into a Securities Purchase Agreement with Seaside for the purchase and sale
of 250,000 shares of its Series B Preferred Stock at the purchase price of $10.00 per share. Pursuant to said Agreement, Seaside
also agreed to purchase an additional $2.5M of the Company’s Series B Convertible Preferred Stock within 14 weeks of that
closing date. The Series B Preferred Stock is convertible into a number of shares of the Company’s common stock every two
weeks. The converted shares are estimated to represent less than five percent of the 10-day trading volume of the Company’s
stock (OTC BB: NNVC), based upon current data. Of the shares purchased, 40,000 shares of the Series B Preferred Stock will
be automatically converted into common stock every two weeks. The conversion factor shall equal the purchase price of $10 per
share of the preferred stock, divided by the lesser of (i) the ten day daily volume weighted average of actual trading prices
(“VWAP”) of the common stock multiplied by 0.85; or (ii) the VWAP for the trading day immediately prior to a conversion
date multiplied by 0.88. In addition, the unconverted shares of the Series B Preferred Stock will accrue a dividend at a 10% annualized
rate. The accrued dividend shall be payable in common stock at the time of each conversion. The Company does not pay a dividend
on the shares of its common stock or the shares of its Preferred Series A stock, and will not be able to pay any dividend on these
securities while any shares of the Series B Preferred stock remain unconverted. The shares of Series B Preferred Stock and the
shares of common stock underlying the Series B Preferred Stock and the dividend earned on it were offered pursuant to an effective
shelf registration statement. The Series B Preferred Stock does not have any voting rights except as set forth in the Certificate
of Designation, as amended, creating the stock. Midtown Partners & Co., LLC, acted as the placement agent for this transaction.
Midtown received a cash placement fee of 6%. A shelf registration statement relating to the shares of common stock underlying
the shares of preferred stock issued in the offering has been filed with the Securities and Exchange Commission (the “SEC”)
and has been declared effective. A prospectus supplement relating to the current transaction has been filed by NanoViricides with
the SEC.



10







On November 2, 2011 the Company received
a financing of $5M from Seaside 88, LP. The first tranche of $2.5M was received immediately upon closing. The Company received
the second tranche of $2.5M on February 7, 2012 The terms of this financing were substantially similar to the terms of the previous
financings by Seaside 88.



On June 28, 2012, the Company raised a
financing of $5M, drawing down on its previously announced universal registered shelf “Form S-3” offering. The Company
received this financing from a single investor, Seaside 88, LP (“Seaside”), a Florida limited partnership. On June
28, 2012, the Company received $2.5M upon closing, with a net of approximately $2.32M after deducting brokerage commission and
expenses. NanoViricides has entered into a securities purchase agreement with Seaside for the purchase and sale of up to 5,000
shares of its newly created Series C Preferred Stock at the purchase price of $1,000 per share. Seaside purchased an initial 2,500
shares of the Company’s Series C Preferred Stock at the purchase price of $1,000 per share for an aggregate purchase price
of $2,500,000. A certain number of the preferred C shares will convert to common stock automatically every 14 days. The amount
of common stock issued at each conversion will be equal to 15% of the average volume of common stock traded in the previous two
weeks, plus common stock resulting from conversion of accrued dividend. The Series C Preferred Stock is convertible into a number
of shares of the Company’s common stock every two weeks. Of the shares purchased, a certain number of shares of the Series
C Preferred Stock will be automatically converted into a certain amount of common stock every two weeks beginning June 28, 2012.
The amount of common stock to be issued is calculated as 15% of the average trading volume of the Company‘s shares in the
previous 10 days of trading. The conversion price of the common stock at the conversion is calculated as the lesser of (i) the
ten-day daily volume weighted average of actual trading prices (“VWAP”) of the common stock multiplied by 0.85; or
(ii) the VWAP for the trading day immediately prior to a conversion date multiplied by 0.88. The total dollar amount of common
stock converted is divided by the $1,000 purchase price of the Preferred Series C shares to arrive at the number of series C shares
converted. In addition, the unconverted shares of the Series C Preferred Stock will accrue a dividend at a 10% annualized rate.
The accrued dividend is payable in common stock at each conversion at the same price of conversion as above. The Company does not
pay a dividend on the shares of its common stock or the shares of its Preferred Series A stock, and will not be able to pay any
dividend on these securities while any shares of the Series C Preferred stock remain unconverted. The shares of Series C Preferred
Stock and the shares of common stock underlying the Series C Preferred Stock and the dividend earned on it were offered pursuant
to an effective shelf registration statement. The Series C Preferred Stock does not have any voting rights except as set forth
in the Certificate of Designation, as amended, creating the stock. Midtown Partners & Co., LLC, acted as the placement agent
for this transaction. Midtown received a cash placement fee of 6%. A shelf registration statement relating to the shares of common
stock underlying the shares of preferred stock issued in the offering has been filed with the Securities and Exchange Commission
(the “SEC”) and has been declared effective. A prospectus supplement relating to the current transaction has been filed
by NanoViricides with the SEC. The Series C Preferred stock limits the conversion based on the dollar volume in the market thus
limiting dilution to our shareholders.



To date, the investor firm Seaside 88,
LP, has invested $22.5M into our Company, drawing down from our “Universal Form S-3 Shelf Registration” which has been
effective since April 29, 2010. This financing vehicle has enabled us to keep dilution to existing shareholders to a minimum. With
this funding, and our continuing controlled rate of expenditure, we now have over $14M cash in hand. This cash reserve now enables
us to start moving our drug candidates forward in the US FDA and International regulatory approval processes.



With these successful financing efforts,
and our continued low rate of expenditure, the Company estimates that it now has cash in hand sufficient for more than eighteen
months of further R&D and operating expenses. In addition, the Company has successfully achieved the goal of securing a building
for a new lab facility and cGMP capability without any capital expenditures. We intend to seek similar financing avenues to enable
cGMP capability without incurring large capital expense.



We thus ended the financial year in a better
financial position than the last year. This new financial strength has enabled us to move forward in our drug development programs.
We are now tackling the major challenge of cGMP manufacturing capability. Our FluCide program is rapidly moving towards the Investigational
New Drug (“IND”) filing stage. We believe that our other programs are also progressing successfully towards the regulatory
submissions goal.



Our Corporate History



NanoViricides, Inc. was incorporated under
the laws of the State of Colorado on July 25, 2000 as Edot-com.com, Inc. and was organized for the purpose of conducting Internet
retail sales. On April 1, 2005, Edot-com.com, Inc. was incorporated under the laws of the State of Nevada for the purpose of re-domiciling
the Company as a Nevada corporation, Edot-com.com (Nevada). On April 15, 2005, Edot- com.com (Colorado) and Edot-com.com (Nevada)
were merged and Edot-com.com, Inc., (ECMM) a Nevada corporation, became the surviving entity. On April 15, 2005, the authorized
shares of common stock was increased to 300,000,000 shares at $.001 par value and the Company effected a 3.2 to 1 forward stock
split effective May 12, 2005.



On June 1, 2005, Edot-com.com, Inc. acquired
NanoViricide, Inc., a privately owned Florida corporation (“NVI”), pursuant to an Agreement and Plan of Share Exchange
(the “Exchange”). NVI was incorporated under the laws of the State of Florida on May 12, 2005 and its sole asset was
comprised of a licensing agreement with TheraCour Pharma, Inc., (“TheraCour,” an approximately 24.9% shareholder of
NVI) for rights to develop and commercialize novel and specifically targeted drugs based on TheraCour's targeting technologies,
against a number of human viral diseases. (For financial accounting purposes, the acquisition was a reverse acquisition of the
Company by NVI, under the purchase method of accounting, and was treated as a recapitalization with NVI as the acquirer). Upon
consummation of the Exchange, ECMM adopted the business plan of NVI.



11







Pursuant to the terms of the Exchange,
ECMM acquired NVI in exchange for an aggregate of 80,000,000 newly issued shares of ECMM common stock, resulting in an aggregate
of 100,000,000 shares of ECMM common stock issued and outstanding. As a result of the Exchange, NVI became a wholly-owned subsidiary
of ECMM. The ECMM shares were issued to the NVI Shareholders on a pro rata basis, on the basis of 4,000 shares of the Company’s
Common Stock for each share of NVI common stock held by such NVI Shareholder at the time of the Exchange.



On June 28, 2005, NVI was merged into its
parent ECMM and the separate corporate existence of NVI ceased. Effective on the same date, Edot-com.com, Inc., changed its name
to NanoViricides, Inc. and its stock symbol on the Pink Sheets to “NNVC”, respectively. The Company submitted a Form-10SB
to the SEC to become a reporting company on November 14, 2006. The Company’s filing status became effective in March, 2007.
On June 28, 2007, the company became quoted on the OTC Bulletin Board under the symbol NNVC. The Company is considered a development
stage company at this time.



NanoViricides, Inc. (the “Company”),
is a nano-biopharmaceutical (nanomedicine) company whose business goals are to discover, develop and commercialize therapeutics
to advance the care of patients suffering from life-threatening viral infections. We are a development stage company with several
drugs in various stages of early development. The Company’s drugs are based on several patents, patent applications, provisional
patent applications, and other proprietary intellectual property held by TheraCour Pharma, Inc. (“TheraCour®”),
to which the Company has exclusive licenses in perpetuity for the treatment of the following human viral diseases: Human Immunodeficiency
Virus (HIV/AIDS), Influenza including Asian Bird Flu Virus (INF), Herpes Simplex Virus (HSV), Hepatitis C Virus (HCV), Hepatitis
B Virus (HBV), and Rabies. On February 15, 2010, the Company entered into an Additional License Agreement with TheraCour granting
the Company the exclusive licenses in perpetuity for technologies developed by TheraCour for the additional virus types for Dengue
viruses (DENV), Japanese Encephalitis (JEV), West Nile Virus (WNV), viruses causing viral Conjunctivitis (a disease of the eye)
and Ocular Herpes, and Ebola/Marburg viruses.



The Company focuses its research and clinical
programs on specific anti-viral therapeutics and is seeking to add to its existing portfolio of products through its internal discovery
and clinical development programs and through an in-licensing strategy. To date, the Company has not commercialized any product.



The Company has incurred significant operating
losses since its inception resulting in an accumulated deficit of $22,894,827 at June 30, 2012. For the year ended June 30, 2012
the Company had a net loss of $6,155,084. Such losses are expected to continue for the foreseeable future and until such time,
if ever, as the Company is able to attain sales levels sufficient to support its operations.



To date, we have engaged in organizational
activities; sourcing compounds and materials; developing novel compounds and nanomaterials, and experimentation with studies on
cell cultures and animals. We have generated funding through the issuances of debt, private placement of common stock, and sale
of registered securities. We have not generated any revenues and we do not expect to generate revenues in the near future. We may
not be successful in developing our drugs and start selling our products when planned, or that we will become profitable in the
future. We have incurred net losses in each fiscal period since inception of our operations. The Company currently has no long
term debt.



Glossary of Terms



Nano - When used as a prefix for
something other than a unit of measure, as in "nanoscience," nano means relating to nanotechnology, or on a scale of
nanometers (one billionth of a meter or greater).



Viricide - An agent which reliably
deactivates or destroys a virus.



Nanoviricide ® – An agent
which is made by attaching ligands against a certain virus or family of viruses to a nanomicelle based on the Company's patent-pending
and proprietary technologies.



Ligand - A short peptide or chemical
molecule fragment that has been designed to specifically recognize one particular type of virus.



Micelle - an aggregate of molecules
in a solution, such as those formed by detergents.



Nanomicelle - Micelles on the scale
of nanometers.



Pendant polymeric micelles- A polymeric
micelle forms from a polymer whose chemical constitution is such that even a single chain of the polymer forms a micelle. A pendant
polymer is a polymer that has certain units in its backbone that extend short chains branched away from the backbone. Pendant Polymeric
Micelles therefore are polymeric micelle materials that are a class of pendant polymers, and naturally form exceptionally well-defined,
self-assembling, globular micelles with a core-shell architecture.



12







Mutations - The ability (of a virus)
to change its genetic structure to avoid the body’s natural defenses. Mutants are viruses created from a parent virus strain
through a process of natural selection under pressure as it replicates in a host.



P-Value- In statistical hypothesis
testing, the p-value is the probability of obtaining a result at least as extreme as that obtained, assuming that the null hypothesis
is true; wherein the truth of the null hypothesis states that the finding was the result of chance alone. The fact that p-values
are based on this assumption is crucial to their correct interpretation. The smaller the p-value, the greater is the probability
that the observed study results and the comparison control are distinct, and therefore that the study results are not a result
of chance alone.



More technically, the p-value of an observed
value observed of some random variable T used as a test statistic is the probability that, given that the null hypothesis is true,
T will assume a value as or more unfavorable to the null hypothesis as the observed value observed. “More unfavorable to
the null hypothesis” can in some cases mean greater than, in some cases less than and in some cases further away from a specified
center value.



Investigational New Drug Application
(Investigational New Drug (“IND”)-  The process of licensure of a new drug in the US goes through
several steps. A simplified explanation of these steps is as follows. Initially a Company may file a pre-IND application to seek
meetings with the FDA for guidance on work needed for filing an IND application. The Company obtains data on the safety and effectiveness
of the drug substance in various laboratory studies including cell cultures and animal models. The Company also obtains data on
chemical manufacturing of the drug substance. These and certain additional data are used to create an IND which the Company files
with the FDA. After the FDA approves an IND application, the Company may conduct human clinical studies. A Phase I human clinical
trial is designed typically to evaluate safety of the drug and maximum permissible dosage level. A Phase II human clinical trial
that follows is designed to evaluate effectiveness of the drug against the disease in a small cohort of patients. A Phase III human
clinical trial thereafter is designed to evaluate effectiveness and safety in larger groups of patients, often at multiple sites.
The Company may then submit an NDA (New Drug Application) with the data collected in the clinical trials. The FDA may approve the
NDA. Once the NDA is approved, the Company can sell the drug in the USA. European countries have similar processes under the European
Medicines Agency (EMA). Other countries have similar processes.



SAR: Structure-Activity-Relationship
study. When an initial lead drug compound is found that has activity, further studies on dug compounds obtained by suitably modifying
it are performed with the goal of improving efficacy, safety, or both. Such studies are called SAR studies. NanoViricides Technologies,
Products in Development, and Collaborations



Pharmaceutical drug development is an expensive
and long duration proposition. Management’s plan is to develop each of our nanoviricides to the necessary stage(s) and then
engage into licensing or co-development relationships with other pharmaceutical companies. Such licensing or co-development relationships
usually may entail upfront payments, milestones payments, cost-sharing, and eventual revenue-sharing, including royalty on sales.
There is no guarantee that we will be able to negotiate agreements that are financially beneficial to the Company at the present
stage. Management plans to continue to raise additional funds as needed for our continuing drug development efforts on public markets.



The Company currently has several drug
development programs. Our drug development programs with large commercial interest include (1) Influenzas, (2) HIV, (3) Topical
Eye Drops for viral diseases of the external eye, (4) Herpes “cold sores” and genital Herpes, and (5) Dengue viruses.
In addition, the Company believes that, as the holder of potentially paradigm-shifting antiviral drug development technologies,
it has a social responsibility to develop drugs against diseases affecting large segments of worldwide populations. In our Social
Responsibility programs, we are developing drugs against Neglected Tropical Diseases (NTDs) caused by viruses such as Dengue viruses
and Rabies. The Company also has BioSecurity programs that include drug development against hemorrhagic fever viruses such as Ebola/Marburg,
and a unique technology that we call “ADIFTM” to combat natural or bioterrorism attacks by novel viruses as happened
with SARS and may happen with engineered viruses. The Company plans to perform its NTD and BioSecurity R&D and drug development
in collaboration with Institutes of renown and with public funding, in order to minimize the strain on our resources. The Company
believes that this work provides direct benefits to our commercially important programs. The Company will continue its efforts
to obtain federal financing for development of these technologies. However, the Company may not be successful in obtaining such
financing. The Company has limited resources and its ability to work on such projects that are deemed of low commercial value is
very limited.



Our Collaborations and Service Contracts
in Brief

Our development model is to employ collaborations
and service contract relationships with renowned academic labs, government labs, as well as service contracts with external service
providers in order to minimize our capital requirements. Our current relationships include:



13







For Influenza Viruses:



| | 1. | KARD Scientific, Inc., MA.
| | -- | --------------------------

| | 2. | Southern Research Institute, AL.
| | -- | --------------------------------

| | 3 | TheVac, LLC, LA.
| | - | ----------------

| | 4 | National (Central) Institute of Hygiene and Epidemiology (NIHE) (Vietnam), for H5N1 avian flu.
| | - | ----------------------------------------------------------------------------------------------



For HIV:



| | 1. | KARD Scientific, Inc., MA.
| | -- | --------------------------

| | 2. | Southern Research Institute, Frederick, MD.
| | -- | -------------------------------------------

| | 3 | University of California at San Francisco (Dr. Cheryl Stoddart, PI), CA.
| | - | ------------------------------------------------------------------------



For Viral Diseases of the Eye (Adenoviruses,
Herpesviruses - Epidemic Kerato-conjunctivitis (EKC), Herpes Keratitis):



| | 1. | The Long Island Jewish Medical System, Feinstein Institute of Medical Research (LIJMS), NY.
| | -- | -------------------------------------------------------------------------------------------

| | 2. | TheVac, LLC.
| | -- | ------------



For Herpes Virus Infections:



| | 1. | TheVac, LLC
| | -- | -----------

| | 2. | Northeastern Ohio Medical University (NEOMED), previously NEOUCOM, Prof. Ken Rosenthal Lab.
| | -- | -------------------------------------------------------------------------------------------



For Dengue Hemorrhagic Fever Viruses:



| | 1. | University of California at Berkeley, Prof. Eva Harris Lab.
| | -- | -----------------------------------------------------------



For Ebola/Marburg Viruses:



| | 1. | United States Army Medical Institute of Infectious Diseases (USAMRIID), Dr. Gene Olinger Lab.
| | -- | ---------------------------------------------------------------------------------------------



For Rabies Virus:



| | 1. | Center for Disease Control and Prevention (CDC), Dr. Charles Rupprecht Lab.
| | -- | ---------------------------------------------------------------------------

| | 2. | National (Central) Institute of Hygiene and Epidemiology (NIHE), Vietnam.
| | -- | -------------------------------------------------------------------------



In addition, this year we have signed an
agreement with the Biologics Consulting Group (BCG), Alexandria, Virginia, to help us with the US FDA applications processes, and
with the development of applications as well as drug development programs, as needed. We have also signed an agreement with Australian
Biologics Pty, Ltd. to help us with the regulatory processes in Australia



We have additional collaborations in the
process of formalization. We typically employ more than one external laboratory to perform testing for a particular disease agent
in order to limit possible laboratory level bias. We previously had a collaborative research agreement with the Walter Reed Army
Institute of Research (WRAIR), Dr. Putnak Lab, for work on dengue viruses. This agreement has since lapsed, but we believe it can
be reactivated at an opportune time.



We have developed lead drug candidates
against a number of viral diseases. Proof-of-principle efficacy studies in animals have been conducted successfully in many of
these. We have declared a clinical candidate for influenza, NV-INF-1, We have developed orally active form of this anti-influenza
drug candidate subsequent to the FY.



The Nanoviricides Concept and Antiviral
Strategy



Nanoviricides are designed to work by binding
to and eliminating virus particles from the blood-stream, just as antibodies do, only potentially much better. Treating a patient
that has a viral infection with a nanoviricide against that virus is expected to result in reduction in viremia. Reduction in viremia
is an important goal in diseases caused by all viral infections.



A nanoviricide is constructed by chemically
attaching a ligand designed to bind to a virus particle, to a polymeric material that forms a flexible nanomicelle by self-assembly.
If antibodies are known to affect a viral disease, it is possible to construct a nanoviricide against it, and there can be a general
expectation of some success, depending upon the ligand chosen. We can choose a ligand from any of a number of chemical classes,
including small chemicals, peptides, or antibody fragments or even whole antibodies.



14







The Company owns an exclusive worldwide
license in perpetuity to technology that enables the creation of nanoviricides. A “nanoviricide®” is a flexible
nano-scale material approximately a few billionths of a meter in size, comparable to the size of a virus particle, which is chemically
programmed by a “ligand” to specifically target and attack a particular type of virus.



In addition, a nanoviricide is also capable
of simultaneously delivering a devastating payload of active pharmaceutical ingredients (API) into the virus particle, to destroy
its genome (RNA/DNA).We plan to implement this strategy against viruses which cannot be cured without an encapsulated API. In our
current drug programs, we have not employed any antiviral API payload.



A nanoviricide is designed to “look
like” the portion of a cell membrane to which a virus particle binds, in a sense. This biomimetic approach is expected to
fool the virus into binding to the nanoviricide, and in an attempt to “enter” it, it is thought that the virus particle
may get destroyed. This is because viruses have developed ways of un-coating themselves once they enter a cell, in order to expose
the viral genomic material so that the virus can hijack the cellular machinery to make its own copies. We call this the “passive
view” of how a nanoviricide may work.



A nanoviricide is designed as a flexible
material, that self-assembles, at about the same size scale as a typical virus particle. The flexible material we use is one type
of a special polymeric material called TheraCour®, invented by the Company’s founders. It assembles in solution into
a flexible ball, somewhat like a ball of hair. We call this a nanoviricide micelle, or “nanomicelle” for short. On
first contact with a virus particle, a nanoviricide micelle may bind to a virus particle because of specific interaction between
a ligand attached to the nanoviricide and the glycoproteins on the virus surface. This may cause the flexible nanoviricide to reach
very close to the virus surface, leading to additional ligands binding to additional viral coat proteins, in a mode called “cooperative
binding”. Cooperative binding is a well-known natural process that forms the basis of biological recognition such as antibody-antigen
binding, DNA hybridization, and protein assembly, among others. Eventually it is thought that the interior of the nanomicelle,
which is lipidic (oil-like) in nature, would fuse with the exterior lipidic coat of the virus particle. This lipidic fusion is
also a well-known natural process. Such fusion may lead to the flexible nanomicelle spreading onto the virus surface much like
an oil-slick covering a golf ball. In the process, the coat proteins that the virus uses for binding to cells may be expected to
become unavailable, and are also likely to even get stripped off completely. The virus particle would then be rendered incapable
of binding to a cell, and thus no longer infectious or capable of causing disease or of making copies of itself. We call this the
“active view” of how a nanoviricide may work.



One may allegorically say that a nanoviricide
has many “arms” and “legs”. The “arms” are the virus binding ligands, that grab the virus surface
glycoproteins. Then the “legs”, the lipid chains in the interior of the nanomicelle, “kick” into and crush
the lipid envelop of the virus. This may cause the virus particle to fall apart.



Nanoviricides thus are designed to employ
the “Bind-Encapsulate-Destroy” strategy, which is akin to the “Find-Encircle-Destroy” war strategy that
has been successfully employed historically in many wars.



Antibodies are a major defense of humans
and animals against viruses. After a person is infected by one particular virus, he/she develops antibodies against the virus.
The infection is fully controlled after a strong antibody response develops. Subsequent exposure to the same virus does not cause
disease, because the appropriate memory cells are activated into producing the correct antibody. However, antibodies by themselves
do not destroy a virus particle. After a few antibodies bind to a virus particle, several processes must take place that eventually
lead to destruction of the virus particle. Many viruses have developed ways of dysregulating this complex immune response cascade.



Nanoviricides, on the other hand, are designed
as “programmed nanomachines” capable of executing the entire strategy of “Bind- Encapsulate-Destroy” without
any dependence on or assistance from the human immune system.



Antibodies also may be too specific to
a particular virus strain, and thus viruses evade antibodies by changing their external surface. Vaccines create antibodies in
the recipient, in order to protect the person. Vaccines are thus limited by the nature of antibodies, and tend to be very specific
to the particular strains or groups of strains of a virus. This is why a new seasonal vaccine must be formulated for influenza
every year. This is also why a novel influenza strain such as bird flu (H5N1) or the 2009/”Swine flu” virus cannot
be defended against by existing vaccines.



Despite all evolutionary/spontaneous changes
such as mutations, re-assortments, recombinations, etc., a particular virus retains its ability to bind to the same features on
the cell surface at the same sites. In designing a nanoviricide, we pay particular attention to the design and selection of a ligand.
We generally choose a ligand that mimics the cell surface features to which all virus strains of a particular virus are known to
bind. We therefore believe that a resistant viral strain against a nanoviricide would be far less likely to occur than resistance
development against any other antiviral agent strategy. If, however, such resistance does occur, a new nanoviricide can be developed
by changing the ligand appropriately.



The NanoViricides’ Technology
and Approach



Nanoviricide drugs, which are presently
in a preclinical stage of development, are designed to lead to reduction in viremia by a set of novel, multiple, concerted, mechanisms:



15







| | 1. | Each nanoviricide drug is designed as a specifically targeted antiviral agent for a particular
type of virus or group of viruses. Often side effects of a drug may be correlated with non-specific interactions with the host
cells, tissues, and organs. Most existing anti-viral agents are known to have non-specific effects against both host cells and
viral machinery at the same time. Most existing anti-viral agents act inside human cells. It is believed that this intracellular
mechanism leads to significant opportunities for non-specific effects against host cells. Nanoviricides, on the other hand, are
designed to work directly against virus particles in bodily fluids. The Company believes that this approach may make nanoviricides
inherently safer than existing approaches.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | A nanoviricide is designed to seek and attach to a specific virus particle, engulfing the virus
particle in the process, thereby rendering it incapable of infecting new cells, and disabling it completely. This suggested mechanism
of action comprises much more than what the current entry and fusion inhibitors are expected to do. The fusion and entry inhibitors
do not completely cover the virus particle and likely block only a few sites on the virus particle, which means the virus particle
may still be capable of infecting cells using its unblocked attachment sites. In contrast, a nanoviricide is expected to engulf
the virus particle completely, because of its larger size and flexible nature, thus disabling the virus particle completely. The
action of a nanoviricide, if it works as designed, in this regard may be expected to be superior to antibody agents that attack
viruses . Antibodies, being large, are expected to block relatively greater portions of the virus particle surface compared to
small molecule entry inhibitors. However, antibodies depend upon the human immune system responses for clearing up the virus particle.
In contrast, nanoviricides are thought to be capable of acting as completely programmed chemical robots that finish their task
of destroying the virus particle on their own.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | A nanoviricide is designed to be capable of encapsulating an active pharmaceutical ingredient (API)
in its core, or “belly”. This is expected to reduce toxic effects of the API. Such encapsulating methods are currently
being used in anti-cancer therapy and have shown reduced toxicity as well as increased efficacy (see http://nihroadmap.nih.gov/nanomedicine/).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | A nanoviricide is designed to deliver any encapsulated API directly into the core of the virus
particle. This is proposed to result in maximal effect against the anti-viral targets, such as the viral genomic materials. Our
goal for this specifically targeted delivery of the API is to minimize toxic effects and also improve efficacy of the API. (see
http://www.nci.nih.gov ).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | With this concerted targeted set of mechanisms, our objective is for the nanoviricide to be programmed
to (a) prevent the virus particle from being able to infect new cells, (b) dismantle the virus particle, and (c) destroy the genetic
material of the virus particle, thereby completely destroying the target. Our complete systems engineered approach to anti-viral
therapy is in stark contrast with the current piece-meal approaches. Current drug therapies often have extensive toxicities, limited
efficacies, and generation of mutants (mutated viruses) through selective incomplete pressure applied by the therapeutic regime
onto the virus.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We designed the nanoviricides to act by
completely novel and distinctly different mechanisms compared to most existing anti-viral agents. The self-assembling nanoviricide
“Trojan horses” would be expected to course through the blood stream, seek their target, i.e. a specific virus particle,
attach themselves to the virus particle target and fuse with the virus particle. This chain of events, if it in fact occurs, is
designed to destroy the virus particle's ability to infect host cells. In addition, if the nanoviricide may contain an encapsulated
API, such API may be deployed into the virus particle and might lead to destruction of the virus genetic material (such as viral
DNA, viral RNA, etc.), and/or key viral components that the virus carries inside its “belly” (such as the reverse transcriptase,
the protease, and the integrase carried by HIV particles), based on the capabilities of the API. This concept needs to be extensively
tested in future experiments. The concept of targeted delivery of an API is well known in the cancer therapeutics arena as this
quote from the National Cancer Institute website above makes clear: “Nanoscale devices have the potential to radically change
cancer therapy for the better and to dramatically increase the number of highly effective therapeutic agents. Nanoscale constructs
can serve as customizable, targeted drug delivery vehicles capable of ferrying large doses of chemotherapeutic agents or therapeutic
genes into malignant cells while sparing healthy cells, greatly reducing or eliminating the often unpalatable side effects that
accompany many current cancer therapies.” http://nano.cancer.gov/resource_center/nano_critical.asp - cancer.



We designed the nanoviricides to act by
a novel set of multiple, concerted, mechanisms. However, being so novel, our drugs are not directly comparable to existing anti-viral
therapies. Thus, the safety and efficacy of the nanoviricides needs to be established by experimentation, and cannot be anticipated
on the basis of any similar information regarding existing drugs. See Part I, Preclinical Safety And Efficacy Studies.



It is important to realize that the flexible
nanoviricides nanomedicines show substantial advantages over hard sphere nanoparticles in this antiviral drug application. Hard
sphere nanomaterials such as dendritic materials (dendrimers), nanogold shells, silica, gold or titanium nanospheres, polymeric
particles, etc., were never designed to be capable of completely enveloping and neutralizing the virus particle.



16







The Company does not claim to be creating
a cure for viral diseases. The Company's objectives are to create the best possible anti-viral nanoviricides and then subject these
compounds to rigorous laboratory and animal testing towards US FDA and international regulatory approvals. Our long-term research
efforts are aimed at augmenting the nanoviricides that we currently have in development with additional therapeutic agents to produce
further improved anti-viral agents in the future.



The Company plans to develop several drugs
through the preclinical studies and clinical trial phases with the goal of eventually obtaining approval from the United States
Food and Drug Administration (“FDA”) and International regulatory agencies for these drugs. The Company plans, when
appropriate, to seek regulatory approvals in several international markets, including developed markets such as Europe, Japan,
Canada, Australia, and Emerging Regions such as Southeast Asia, India, China, Central and South America, as well as the African
subcontinent. The seeking of these regulatory approvals would only come when and if one or more of our drugs, now in early stage
of pre-clinical development, has significantly advanced through the US FDA and international regulatory process. If and as these
advances occur, the Company may attempt to partner with more established pharmaceutical companies to advance the various drugs
through the approval process.



There can be no assurance that the Company
will be able to develop effective nanoviricides, or if developed, that we will have sufficient resources to be able to successfully
manufacture and market these products to commence revenue-generating operations.



There can be no assurance that other developments
in the field would not impact our business plan adversely. For example, successful creation and availability of an effective vaccine
may reduce the potential market size for a particular viral disease.



Our goal, which we can give no assurance
that we will achieve, is for NanoViricides, Inc. to become the premier company developing nanomedicines for anti-viral therapy.



Our Product Focus and Technologies



The Company plans to develop several different
nanoviricide drugs against a number of human viral diseases. The Company initially obtained an exclusive license in perpetuity
to develop drugs based on technologies originally created by TheraCour Pharma, Inc., (TheraCour) against the following human viral
diseases: H5N1 (Avian Flu), Human Influenza, Human Immunodeficiency Virus (HIV/AIDS), Hepatitis B Virus (HBV), Hepatitis C Virus
(HCV), Herpes Simplex Virus (HSV), and Rabies, including all known strains of these viruses. The Company has entered into an Additional
License Agreement with TheraCour granting the Company the exclusive licenses in perpetuity for technologies developed by TheraCour
for the additional virus types for Dengue viruses, Japanese Encephalitis virus, West Nile Virus, Viruses causing viral Conjunctivitis
(a disease of the eye) and Ocular Herpes, and Ebola/Marburg viruses.



We currently have, in early, active development,
products against Epidemic Influenzas including the current novel H1N1/2009 “Swine flu” virus, H5N1 and other Highly
Pathogenic Avian Influenzas (H5N, H7N, H9N HPAI, Bird Flu), common seasonal human Influenzas, (2) HIV (3) Eye drops against viral
diseases of the eye such as conjunctivitis and keratitis, (4) Herpes virus cold sores and genital Herpes, and (5) Dengue viruses.
In addition, we have research programs against Rabies virus, Ebola/Marburg family of viruses, as well as other Viral hemorrhagic
fevers. We also have a research program called ADIF(TM) “Accurate-Drug-In-Field”, that we believe is the only
way to combat a novel viral threat right in the field before it becomes an epidemic like SARS, bird flu H5N1, Ebola, or other viral
outbreak. Adenoviral Epidemic Kerato-Conjunctivitis (EKC) is a severe pink eye disease that may lead to blurry vision in certain
patients after recovery. Herpes simplex viral infections cause keratitis of the eye, and severe cases of infection may sometimes
necessitate corneal transplants. The Company's ability to achieve progress in the drugs in development is dependent upon available
financing and upon the Company's ability to raise capital. The Company will negotiate with TheraCour to obtain licenses for additional
viral diseases as necessary. However, there can be no assurance that TheraCour will agree to license these materials to the Company,
or to do so on terms that are favorable to the Company.



The total market size of drugs for the
programs in which we already have lead drug candidates are estimated to be over $40B in 2013.



Our product development programs can be
roughly divided into three sectors: (1) Commercially Important Diseases, (2) Neglected Tropical Diseases (NTD’s) and Biosecurity/Biodefense,
and (3) Advanced Technologies.



The commercially important diseases tend
to have large market sizes, and are, therefore, attractive targets for collaborations with smaller pharmaceutical companies such
as NanoViricides, Inc.



We are also pursuing licensing opportunities
for our commercial drug programs. Historically, major pharmaceutical companies have licensed highly innovative drugs only after
human clinical studies have established the value of the drug. In recent years, major pharmaceutical companies have entered into
very early stage agreements, as early as screening and discovery level, with other pharmaceutical companies. We cannot, however,
predict to what extent major pharmaceutical companies will be interested in engaging in early stage collaborations with us to develop
our nanoviricide drugs.



17







We have initiated a Biosecurity/Biodefense
program based on the US Government’s commitment to Biosecurity. We are performing these developments strictly in various
government and institutional collaborations to minimize development costs to us. In addition, we are pursuing grant and contract
opportunities in this area to finance the drug development activities. The US Government is virtually the only source of revenue
for our Biosecurity/Biodefense programs. Although we believe that we have demonstrated significant successes in this area, we do
not intend to develop drugs in this area without continued government funding and assistance.



Our NTD programs were initiated because
of the Company’s commitment to social responsibility. As a Company led by medical professionals and committed scientists,
we believe that these programs could make a substantial impact on the quality of worldwide healthcare. The Company believes its
nanoviricide technology enables development of highly effective drug candidates against various diseases, at less effort and expense
than traditional drug development. We have taken advantage of various government and institutional collaborations to perform drug
development activities in the NTD area at a minimal cost. In addition, our R&D on NTD’s also indirectly benefits our
drug development for the commercially important diseases.



The NTD’s have very high incidence
rates worldwide. Most of the NTD infections occur in underdeveloped countries. As such, NTD’s have traditionally been assigned
low market sizes by market analysts. With the economic prosperity of India, China, Brazil, Russia, and other emerging world economies
(the BRIC block), the economic situation relative to healthcare is also changing dramatically. Further, there are significant US
government programs designed to promote the development of drugs against various NTD’s, including the “priority voucher”
program of the US FDA, which may have commercial value. In addition, there are several charitable foundations that are deeply involved
in the NTD area in various roles, although primarily in improving access to healthcare.



Commercially High Priority Drug Development
Programs



To date, the Company has developed drug
candidates against five virus types/disease areas with strong commercial prospects. These include Influenza, HIV, viral diseases
of the external eye, Herpes Cold Sores and Genital Herpes, and Dengue viruses. The market size for HIV is estimated to be $21 billion
in 2013. The market for influenza drugs is estimated at about $7 billion. The eye drops topical viricide market size is estimated
to be in the billions of dollars. In addition, the herpes cold sores and genital herpes market size is in several billion dollars.
The market for Dengue is also estimated to be in the billions of dollars because of the large extent of population exposed worldwide
to the possibility of severe dengue disease.



One Influenza Drug Against All Influenzas:
“H1N1 Swine Flu”, Common Influenzas, High Path Avian Influenzas, Bird Flu, Epidemic and Pandemic Influenzas



Our FluCide(TM) program lead drug
candidate has shown efficacies animals that far exceed that of known drugs such as Oseltamivir (Tamiflu®, Roche) against common
influenza in an animal model. We have consolidated all of our influenza drug programs into a single, broadly active, yet highly
effective, pan-influenza FluCide program. The new FluCide is expected to be highly active against all influenzas, including highly
pathogenic strains such as H5N1, the novel H1N1/2009 Mexico/California “Swine Flu” epidemic strain, H3N2, H7N, and
H9N among others. We are currently developing a single drug for all influenzas, whether pandemic, epidemic, seasonal, novel, emerging,
human, swine, or avian. We are developing an orally available form of FluCide for out-patients. In addition, we are developing
a sterile concentrated solution that is suitable for “piggy-back” infusion for the treatment of hospitalized patients
with influenza or influenza-like-illness. We have declared a clinical candidate for influenzas.

Recently, with additional SAR (structure-activity-relationship)
studies, we have been able to develop influenza virus binding ligands that are expected to be superior to the ones we employed
previously. The new ligands are designed to be closer mimics of the sialic acid receptors (than the previously employed ones),
yet capable of binding to influenza virus hemagglutinin proteins that use either the “avian” or the “human”
types of sialic acid receptors. Pigs are known to be a “mixing vessel” species, exhibiting both avian and human types
of sialic acid receptors, and thereby re-assortment (mixing) of genetic material from influenza strains, subtypes, or types, with
different host specificities can occur readily in pigs. We are actively seeking partnerships, collaborations and government funding
for our anti-influenza drug program.

In September 2012, we demonstrated oral
efficacy of our anti-Influenza drug candidates against two different viruses namely H1N1 and H3N2. With these developments, the
Company now intends to develop an oral influenza drug for out-patients. In addition, the Company intends to continue its injectable
drug development as “piggy-back” infusion solution for hospitalized patients.



Viral Diseases of the Eye: Viral Conjunctivitis,
Viral Keratitis – Eye Drops



We are developing a nanoviricide against
adenoviral Epidemic Kerato-Conjunctivits (EKC). EKC is a severe disease of the eye which in some people causes long term or permanent
blurred vision. In an animal study, our EKCCide(TM) lead candidate was shown to rapidly resolve the clinical signs of the
disease, when treatment was started after infection had set in. The clinical success included demonstration that no SEI’s
(immunoprecipitates) were formed in treated animals, as opposed to control group. SEI’s are known to be the cause of blurred
vision. There are currently no approved drugs available against EKC, and it is an active field of drug development research. There
are about 2.5 million cases of EKC annually in the USA alone.



The Company is not aware of any animal
studies of anti-EKC drug candidates that have demonstrated resolution of clinical disease. Based on these successful results, we
expanded our program to develop a single broad-spectrum nanoviricide treatment effective against most of the viruses causing external
eye diseases, including viral conjunctivitis and viral keratitis. A large majority of external eye viral infections are caused
by adenoviruses or herpes simplex viruses (mainly HSV-1).



18







We have now successfully developed drug
candidates that are effective against both adenoviruses and against HSV-1, viruses that cause most of the viral diseases of the
external eye. Additional animal testing against HSV-1 infection of the eye is expected to be commissioned in the coming year.



HSV and some adenoviruses cause most of
the cases of keratitis, a serious infection of the cornea (approximately 250,000 US cases/year). Importantly, HSV infection can
lead to corneal scarring that may necessitate corneal transplantation. In addition, some adenoviruses cause a majority of conjunctivitis
cases (“Pink eye”). The remaining cases of conjunctivitis are caused by bacteria and are treatable with topical antibiotics.
Currently there are no effective treatments for viral diseases of the exterior portion of the eye.



The nanoviricide eye drug candidate is
formulated as simple eye drops.



The total market for viral conjunctivitis
and keratitis is estimated to be in the billions of dollars. The incidence of severe herpes keratitis is estimated to be 250,000
cases per year in the USA. In Japan, where EKC is a reportable disease, it is estimated that there are at least one million cases
per year. The number of cases of non-specific conjunctivitis (pink eye) is considered to be far greater, possibly into the tens
of millions in the US and hundreds of millions worldwide.



Herpes Cold Sores and Genital Herpes



As a result of the expansion to include
HSV for our eye drug candidate, we also undertook a drug development program for a nanoviricide against the herpes simplex viruses,
HSV-1 and HSV-2. These viruses cause herpes cold sores or oral lesions and skin lesions, and genital herpes sores. Drugs such as
acyclovir are available for HSV. However, the virus, once infection takes place, travels into the closest neural ganglia and “hides”
there, causing recurrent outbreaks.



We are currently developing an anti-HSV
nanoviricide skin cream formulation for direct application to the lesions. We believe that the distinctly different mechanism of
nanoviricide action should result in a complimentary effect with the existing drugs. We believe that direct attack on the HSV particle
by the nanoviricide would result in less reinfection of human cells, and may possibly lead to a reduction in the amount of hidden
virus. This may lead to reduced rates of recurrence.



We have previously successfully tested
certain anti-HSV drug candidates in a cell culture model for effectiveness against Herpes Simplex Virus (HSV-1) infection. This
testing was conducted by TheVac, LLC laboratories at the Louisiana Emerging Technology Center located within the Louisiana State
University (LSU) campus in collaboration with the LSU School of Veterinary Medicine. Four different nanoviricides showed greater
than 10,000-fold (>99.99% or 4-logs) reduction in virus quantity compared to untreated controls in a cell culture assay employing
the LSU proprietary green-fluorescent-protein-tagged (GFP) modified HSV-1 McKrae strain.



These nanoviricide drug candidates are
designed to act against all herpes simplex virus strains, including HSV-1 and HSV-2. The Company has commissioned additional in
vitro studies to confirm the results. Animal studies have also been scheduled.



On May 13, 2010, the Company announced
that it had entered into a Research and Development Agreement with Professor Ken Rosenthal Lab at NEOUCOM. Professor Rosenthal
has developed in vitro or cell culture based tests for identifying the effectiveness of antiviral agents against HSV. He has also
developed a skin lesion mouse model for HSV infection. Dr. Rosenthal has been involved in the evaluation of HSV vaccines as well
as anti-HSV drugs. His laboratory has developed an improved mouse model of skin-infection with HSV to follow the disease progression.
This model has been shown to provide highly uniform and reproducible results. A uniform disease pattern including onset of lesions
and further progression to zosteriform lesions is observed in all animals in this model. This uniformity makes it an ideal model
for comparative testing of various drug candidates. Dr. Rosenthal is a professor of microbiology, immunology and biochemistry at
Northeastern Ohio Universities Colleges of Medicine and Pharmacy (NEOUCOM). He is a leading researcher in the field of herpes viruses.
His research interests encompass several aspects of how herpes simplex virus (HSV) interacts with the host to cause disease. His
research has addressed how HSV infects skin cells and examined viral properties that facilitate its virulence and ability to cause
encephalitis. In addition, Dr. Rosenthal has also been studying a viral protein that makes the HSV more virulent by helping the
virus to take over the cellular machinery to make copies of its various parts, assemble these parts together into virus particles
and release the virus to infect other cells. He is also researching how the human host immune response works against HSV for the
development of protective and therapeutic vaccines.



On August 16, 2010, the Company reported
that its anti-Herpes drug candidates demonstrated significant efficacy in the recently completed cell culture studies in Dr. Rosenthal
Lab at NEOUCOM. Several of the anti-Herpes nanoviricides® demonstrated a dose-dependent maximal inhibition of Herpes virus
infectivity in a cell culture model. Almost complete inhibition of the virus production was observed at clinically usable concentrations.
These studies employed the H129 strain of herpes simplex virus type 1 (HSV-1). H129 is an encephalitic strain that closely resembles
a clinical isolate; it is known to be more virulent than classic HSV-1 laboratory strains. The H129 strain will be used in subsequent
animal testing of nanoviricides.



19







We now have evidence that our anti-HSV
drug candidates were highly effective against two different strains of HSV-1. We believe that these drug candidates should be effective
against most if not all of HSV-1 strains. We also plan to test these drug candidates for effectiveness against HSV-2.



Herpes simplex virus (HSV) causes “cold
sores” or “fever blisters”, the incidence of which is second only to the common cold (100 million recurrences
annually in the US alone). In addition, genital herpes prevalence is 67 million infected individuals in the US alone. This represents
20% of the US population infected with symptomatic, recurrent disease. It is also believed that a large fraction of infected individuals
remain asymptomatic. Seroprevalence (people with antibodies) in general French population is about 67% for HSV-1 and 17% for HSV-2.
It is estimated that worldwide incidence and infection rates are very similar to these high proportions of infection prevalence.



Existing therapies for herpes virus infections
include acyclovir and drugs chemically related to it (e.g. gancyclovir, valcyclovir, others). These drugs, nucleoside analogs,
act by inhibiting viral DNA synthesis. However, there is known drug toxicity due to interference with human metabolism. Currently,
there is no cure for herpes infection.



Nanoviricides are designed to act by a
novel and distinctly different mechanism compared to existing drugs. Nanoviricides are designed to mimic the human cell surface
to which the virus binds. Our results suggest that a nanoviricide could become a highly sought after drug against HSV.



HIV



Our very first animal studies in the standard
SCID-hu mice against HIV-I have demonstrated that our primary nanoviricide drug candidate, HIVCide, as well as several other nanoviricide
drug candidates were found to be superior to the three-drug oral cocktail (HAART) that is the current standard of care.



We have executed a Master Service Agreement
(MSA) with Southern Research Institute, Infectious Diseases Division, Frederick, MD (SRI-F) to conduct these studies. SRI-F is
a well-established Contract Research Organization (CRO) that has developed, conducted, and published in scientific journals on
standardized study protocols for various mechanisms of anti-HIV action, including microbicides, antibodies, and small chemical
therapeutics. We are also planning additional animal studies of these drug candidates. We are also planning additional animal model
studies of the HIVCide(TM) lead drug candidate.



We reported that a subset of the anti-HIV
nanoviricides tested in cell culture models at Southern Research had very similar activity against two distinctly different isolates
of HIV-1, viz. Ba-L and IIIB. HIV-1 Ba-L is CCR5-tropic (uses CD4 and CCR5) whereas HIV-1 IIIB is CXCR4-tropic (uses CD4 and CXCR4
on host cells). The Company had designed the ligands using the known structures of interaction of gp120 of several HIV-1 strains
with the CD4 human cell receptor for HIV.



We designed the anti-HIV nanoviricides
using rational drug design principles. The ligands we have designed in the case of HIV-1 are thought to be broadly neutralizing.
In-silico modeling indicates that our ligands dock to the conserved CD4 binding site of gp120 of HIV-1. We have even observed successful
docking of some of our ligands with gp120 of the HIV-1 JRFL strain which is thought to be resistant to HAART.



We have designed additional novel
ligands to attack the HIV gp120 at its CD4 binding sites. In order to discriminate the comparative effectiveness of different
nanoviricides in the humanized mouse model, we synthesized nanoviricides with reduced ligand density than in our previous
study. A new study revealed that one of these nanoviricides was as effective as the three drug HAART cocktail (AZT, 3TC and
Efavirenz) in the humanized mouse model. What is more, this drug kept the viral load at a sustained low level until at least
28 days after last drug dose. This sustained drug effect is a very important benefit especially for HIV/AIDS patients. We
believe that we may have a “functional cure” for HIV/AIDS.



Resistance to HAART eventually leads to
AIDS. It is possible that HIVCide can be used in addition to HAART to obtain even stronger beneficial effects, resulting in a “functional
cure” of HIV.



The HIV genome integrates into certain
human cells that go into hiding or dormancy for several years.



While dormant, the HIV genome does not
produce HIV virus particles or HIV proteins to any significant extent and are thought to remain unaffected by current anti-HIV
drugs. The current standard treatment results in very low levels of HIV viremia, but the immune cells (CD4+ T cells and CD8+T cells)
count eventually begins decreasing at a slow rate. The HAART therapy must be continued for the life of the patient. A more effective
therapy could result in complete loss of HIV from the blood stream. This may eliminate the slow loss of healthy immune cell populations,
and allow immune system function to return to normal. Patients may then enjoy a normal life without further daily treatment, until
an episode occurs which mobilizes the “sleeping” cells containing the HIV genome. Such a therapy would be called a
“functional cure” against HIV. A total cure of HIV would require elimination of the dormant cell pool containing the
HIV genome. Research in the field of reactivating the dormant pool of HIV infected cells is encouraging. If these cells can be
reactivated, and simultaneously the HIV viremia controlled, researchers have proposed that this could lead to reduction in the
dormant infected cell pool. If their hypotheses are correct, HIVCide could lead to an eventual cure, possibly in combination with
other drugs.



20







Nanoviricides act by a different mechanism
than standard anti-HIV therapy. The Company believes, therefore, that by combining a nanoviricide with current therapy, a functional
cure of HIV may be already achievable. However, there is no way to predict whether such a treatment would be successful at providing
a functional cure of HIV at present.



HIVCide is expected to be a significant
anti-HIV candidate, acting by a novel mechanism of action and a first-in-class therapeutic, based on current preliminary data.
We intend to develop it further.



Dengue



We are currently working on developing
anti-Dengue therapeutics. Dengue is an important NTD. According to the Centers for Disease Control and Prevention in Atlanta (CDC),
dengue fever risk is about 1 illness per 1,000 US travelers, and it is the most common cause of fever in returned travelers from
the Caribbean, Central America, and South Central Asia. The CDC has also noted "dengue is the most important mosquito-borne
viral disease affecting humans. Each year, tens of millions of cases of DF occur and, depending on the year, up to hundreds of
thousands of cases of Dengue hemorrhagic fever (DHF)." Dengue fever is also called “break-bone fever”. The first
or primary dengue infection has very low fatality rates associated with it. However, when a person is infected with a different
type of dengue virus afterwards, the person is at risk of developing Dengue Hemorrhagic Fever (DHF), or Severe Dengue fever. The
fatality rate associated with DHF/Severe Dengue may be as high as 10%. There is currently no vaccine or cure for dengue, which
causes high fever, muscular pain, headaches, vomiting, and in some cases skin rash. WHO estimates that 2.5 billion people are at
risk of dengue fever or of DHF out of a total world population of 6.6 billion. Dengue viruses are carried by Aedes aegypti mosquito,
which is gaining ground northwards as the global climate warms up. There have been several cases of Dengue in the southern regions
of the USA.



We have reported successful cell culture
studies against dengue virus type 2 with nanoviricides made using unoptimized ligands. The Company also reported that its anti-Dengue
drug candidates demonstrated significant protection in the initial animal survival studies of Dengue virus infection, in an animal
study protocol modeled to simulate the ADE syndrome. The best nanoviricide drug candidates demonstrated 50% animal survival in
this uniformly lethal mouse model.



These studies were conducted at the Prof.
Eva Harris lab at the UC Berkeley.



Based on these data, the Company believes
that it is feasible to develop a single nanoviricide drug against all types of dengue viruses that circumvents the primary issue
of antibody-dependent enhancement (ADE) of dengue virus infection. ADE is thought to result in severe dengue disease syndromes
such as dengue shock syndrome (DSS) and dengue hemorrhagic fever (DHF).



We are now in the process of developing
ligands better optimized against the dengue envelope proteins.



Neglected Tropical Diseases and Biosecurity/Biodefense
Programs: Ebola, Marburg, Rabies, other viruses



Ebola, Marburg

We have obtained significant positive results
against Ebola, although the Ebola virus produces a soluble glycoprotein decoy that may be capable of avoiding certain of our virus-binding
ligands.



The Company continues its efforts at obtaining
federal funding for this program. In the absence of public funding, the Company’s ability to develop these drugs is very
limited.



Rabies



Our RabiCide(TM) program has resulted
in candidates that have enabled survival of 20% to 30% of infected animals after disease has set in, using a particular animal
model. Further testing is in progress in a different experimental model. We believe that if this testing succeeds, it may be the
first ever therapeutic against rabies. Currently, rabies is a uniformly lethal disease with only prophylactic medications available,
which are comprised of human antibodies, monoclonal antibody mixtures, and rabies vaccine virus strains. The potential market size
for a rabies drug worldwide has been estimated at $300M to $500M. In absence of public funding, the Company’s ability to
develop these drugs is very limited.



21







Advanced Technologies : ADIF(TM)
Technologies



We believe that our technologies and capabilities
at attacking different viruses are fairly well demonstrated. In addition, we have developed “Accurate-Drug-In-Field(TM)”
or ADIF(TM) technologies that may show efficacy in treating epidemics like H5N1, SARS or Ebola by developing a targeted therapeutic
in the field to prevent the spread of the disease.



ADIF technology does not require any knowledge
of the molecular biology of the virus, or even its specific identification. An accurate drug, specifically targeted at the virus,
can be developed in the field, from nanomicelles stockpiled beforehand. This enables a rapid response timeframe of as short as
3 weeks for initial drug doses, and potentially less than 3 months for sufficient doses to curb the spread of the virus outside
the affected area. Thus ADIF technologies are applicable to novel, or engineered viruses, or emerging infections whether natural
or man-made. This technology may have significant applications in the Biodefense area. We believe that this is the only technology
that can enable humans to combat novel viruses before they spread disease.



We have already demonstrated the ADIF technology
capabilities successfully.



The Strength of Our Drug Pipeline



Between the two ends of the spectrum of
specific antivirals developed during peace-time effort, and the specific antivirals developed as a “war-like” effort
(ADIF), we have also demonstrated the capability of developing broad-spectrum nanoviricides. Broad-spectrum nanoviricides are based
on the validated scientific fact that a large number of virus families employ the same cell surface receptor.



Our nanoviricides are designed as “cell
biomimetics,” meaning that the nanoviricides “look like” a cell to the virus. The nanoviricide carries a portion
of the broad-spectrum receptor on the nanomicelle surface that the virus attaches to and is then entrapped or dismantled by the
nanoviricide. Such broad-spectrum nanoviricides could be stockpiled to enable treatment of many infectious agents with very few
drugs, and thus would be valuable to worldwide disease programs, and Strategic National Stockpiling efforts.



We believe that the Company has a strong
and wide pipeline of antiviral drugs. However, with relatively meager financial resources, the Company continues to juggle prioritization
of the various programs, and program achievements.



We are working on a pre-Investigational
New Drug (“IND”) application for our anti-influenza clinical candidate, NV-INF-1, in the FluCide program, as of the
date of this filing.



The Company has received significant interest
from pharmaceutical companies in its Viral Eye Diseases drug candidate, and HIVCide and FluCide programs to date, and we expect
interest to increase in other programs as well. There is no guarantee that this interest would result in any financially lucrative
licensing or co-development agreements.



All of our programs are currently at the
pre-clinical stage. We have established preliminary proof of efficacy in cell culture and animal models, and we have conducted
preliminary safety studies that have indicated that all of our nanoviricides are safe in the animal models as tested. We continue
to work on further experiments necessary for development of our various drug candidates as FDA approvable drugs.



Last year, we added two commercially important
drug candidate to our pipeline, namely DengueCide and HerpeCide.



In addition, we simplified our anti-influenza
drug programs because of the high efficacies of our new drug candidates into a single pan-Influenza broadly acting new FluCide.
This single drug is being developed for all influenza indications including seasonal influenzas, highly pathogenic influenzas,
bird flu, and novel epidemic influenzas such as the current novel H1N1/2009. We believe that this will reduce development costs
significantly. This is also expected to help us gain expanded market share and easier market acceptance, including stockpiling,
when a drug is approved. Emergency Use Authorization can occur under circumstances such as the current epidemic under certain conditions
after an IND has been filed, prior to a full FDA approval. We are not at the stage of submitting the necessary applications to
the FDA as yet.



We are developing nanoviricides for different
routes of administration, choosing the best option based on a viral disease pathology. Thus, we are developing eye drop formulation
for the viral diseases of the external eye. We are developing skin cream and gel formulations for topical application of nanoviricides
against oral and genital herpes. All other drugs candidates including FluCide and HIVCide are currently being developed as injectables.
We believe that it will be possible in the future to develop aerosols for influenza and nasal sprays for common colds and similar
diseases. This is possible because nanoviricides have been designed so that they can be formulated in many different ways.



Drug Development Studies



The discussions in this section and throughout
this Form 10-K describe the tests that have been conducted and the results obtained. These results do not provide sufficient evidence
regarding efficacy or safety to support an Investigational New Drug (IND) application with the FDA. Additional studies will need
to be conducted. It must be noted that subsequent results may or may not corroborate earlier results.



22







Preclinical Safety And Efficacy Studies



Preliminary Safety Studies In Vitro



We have conducted limited initial animal
safety studies on one of the core TheraCour® nanomaterials (patent pending). TheraCour technology covers a large range of nanomaterials
in a class known as pendant polymeric micelles. These materials are self-assembling, flexible, non-particulate, and stable at room
temperature.



We rely upon TheraCour nanomaterial to
form the backbone of our nanoviricide antiviral drugs. One of the TheraCour polymers was tested at a 100mg/kgBW (body-weight) dose
level in mice in a preliminary experiment. In studies involving gross tissue examination, microscopic histology studies, and blood
pathology, no ill-effects or toxic effects were found. These studies showed that the tested core nanomaterial did not cause any
organic damage in mice at the amounts tested. All results were within safe limits.



Several additional animal studies have
been conducted in which the effect of a nanoviricide in the context of a disease was evaluated using histopathological techniques.
Mice infected with influenza virus (H1N1) in a lethality type of study were treated with nanoviricides. The histological effects
observed to date have been mild and explained by the disease state and there do not appear to be any deleterious effects of any
significance that related to the nanoviricides drugs. Systematic studies for evaluating the safety or toxicity threshold will be
performed in the future.



Higher dosage levels and studies on additional
materials are planned in order to determine the safety thresholds in laboratory animals. The only purpose of these studies was
to give our scientists direction in designing the next set of studies. These have no impact on the regulatory (FDA) process.



Proof-of Principle



We have conducted studies which demonstrated
that when a small chemical molecule (ligand) is attached to our nanomicelles covalently, the resulting nanoviricide has such a
high activity that as little as 1/50th of the attached molecule is needed for comparable activity [i.e. a 20mg/kgBW injection of
free molecule and a 0.04 mg/kgBW injection of the molecule attached to the polymer showed equivalent efficacy]. These results suggest
to us that the observed antiviral activity of the nanoviricide is due to the proposed mechanism of action of the nanoviricide and
not to either component of the drug, the ligand or the nanomicelle. This is considered "proof of principle" in that our
original theoretical assumptions about the functionality of the nanoviricide have scientifically been validated.



We have also performed studies in vitro
in which a murine cytomegalovirus (CMV) preparation was subjected to dilute solutions of two different nanoviricides and the resulting
solutions were studied by electron micrography to evaluate morphological changes in the virus. The nanoviricide treatments led
to complete loss of the virus's lipid coat, resulting in the virion capsids spilling out. The virion capsids of CMV lack the coat
proteins required for attachment to cells and are non-infectious. Electron micrographs depicting this can be found on our web site
at http://www.nanoviricides.com/action_small.html.



Efficacy Studies - Influenza



Our original plan was to introduce as many
as three different drugs against influenza because of the perceived differences between certain different influenza virus types.
For example, bird flu H5N1 Influenza A virus has been simmering in the South Asia region and has been moving all across the world,
a little westward every year. This virus and its variants (Clades) cause extremely severe infection that has a rapid onset and
a very high fatality rate, as much as 50-80%. We decided to develop an antibody-based nanoviricide to attack this variant (AviFluCide(TM)),
as it was expected to have very high effectiveness and rather fast development time if appropriate resources became available.
Given the global alerts for H5N1 in 2004-2006, we believed that this was the best course of action to make an accurate drug against
H5N1 rapidly available. Another set of avian influenza viruses, H7N, H9N for example, cause very severe disease and also epidemics,
but are not as fatal as H5N1. The influenza A viruses that cause severe disease in humans were found to have a common “signature
region” in their hemagglutinin protein (HA), called the “polybasic site”. The presence of the polybasic site
in HA is known to be associated with increased virulence. We therefore also embarked upon a program to develop a nanoviricide that
would recognize a polybasic site motif. This would be FluCide-HP(TM) (for highly pathogenic viruses). In addition, we embarked
on development of a nanoviricide that attacks the sialic acid recognition site on both HA and NA (neuraminidase) proteins on the
virus surface. This is called “FluCide(TM)”. Since then, with further optimization of the ligands, we have achieved
extremely high effectiveness levels with our FluCide nanoviricide drug candidate. This has allowed us to combine all three anti-influenza
programs into a single FluCide program. FluCide is expected to be highly effective against all influenzas, from the most severe
forms of influenza including bird flu H5N1 variants, highly pathogenic avian influenza viruses (HPAI), novel epidemic influenzas
such as the recent H1N1 A/2009/”Swine Flu”, to the less severe seasonal and common influenzas. We believe that dosage
modification is all that would be necessary to combat different types of influenzas. Given that we have not seen dose-limiting
toxicities yet, we believe it is possible to develop a single, highly effective, nanoviricide drug against all influenzas.



23







Preliminary Cell Culture Studies against
H5N1 Avian Influenza, Clade 1 and Clade 2



In vitro (laboratory) evaluation of 14
substances, including controls, was performed to evaluate protection of mammalian cells against infection by the H5N1 subtype.
These assays were conducted in Vietnam under the auspices of the National Institute of Hygiene and Epidemiology, Hanoi (NIHE) under
the Vietnam Ministry of Health. We identified four different nanoviricides as being highly effective against H5N1 using two different
assays, both involving cell culture, one using the plaque reduction method and the other involving microscopic examination, to
determine the extent of cytopathic events (CPE) reduction. All of these nanoviricides were effective at extremely low concentrations
and many of them are considered by us to be drug candidates.



Four different nanoviricides were selected
on the basis of the statistical test called the p-value, (explained below). The p-values for these four compounds were p<.003
which meant that there was a high statistical probability that these results were due to the effect of the test nanoviricides and
not due to chance. Thus the "null hypothesis" is rejected and the results can be considered statistically significant.



The most successful of our assays was a
nanoviricide based on an antibody fragment as the targeting ligand, which led to substantial suppression of CPE at an extraordinarily
low concentration level. This is being developed as AviFluCide-ITM, a drug highly specific to H5N1 that is being developed against
the Vietnam strain. We currently believe that it is very likely to work against the Indonesian strain although further studies
will be required to determine its efficacy against various highly pathogenic stains of influenza. If it fails to work against the
Indonesian 2006 strain, further development may become necessary.



Another nanoviricide which is based on
a ligand that we designed in-house, using rational drug design strategy, to be specific to the group of all or a majority of highly
pathogenic avian influenza (HPAI) viruses, also showed a very high efficacy. This is being developed as “FluCide-HP(TM)”,
a drug designed to be group-specific against emergent and existing highly pathogenic influenza viruses (including H5N1, H7N, H9N
and others). Non-H5N1 HPAI (non-pathogenic avian influenza) strains could become a pandemic threat when their occurrences increase,
as can all influenza A viruses since they all have the ability to mutate. It is well known that influenza strains drift constantly
due to mutation, re-assortment or recombination events leading to failure of vaccines.



A third nanoviricide is based on a ligand
that we designed for attacking all influenza A viruses (type-level specificity). This has shown strong efficacy against H5N1 as
well, as expected. This is being developed as “FluCide-ITM”, a drug designed primarily for use against serious
cases of human influenza.



Preliminary analysis of the H5N1 preclinical
in vitro studies performed in Vietnam showed that many nanoviricide candidates were effective at as low as 5-nanomolar concentration
levels in cell culture experiments. Typically, an early developmental drug that proves effective at concentrations less than 500
nanomolars is considered a strong candidate for FDA approval as an IND applicant.



All of the above studies have been repeated
with the same, as well as, additional test methodologies (for example, evaluation of CPE quantitatively by a cell viability soluble
dye assay) producing confirmatory results against this rgH5N1 Vietnam strain (based on the Vietnam 2004/2005 H5N1 strain).



Additional cell culture studies against
the wild-type clade 2 H5N1 strain isolated in Vietnam in late 2006 showed that FluCide-HP caused a 90% reduction in CPE as measured
by the dye assay, whereas FluCide-I gave a 70% reduction in CPE, indicating that both of these broad-spectrum drugs are highly
effective even against different strains and different clades of H5N1.



The Indonesia 2006 H5N1 strain also belongs
to the clade 2 subgroup within H5N1 subtype.



Both of these drug candidates were also
highly effective in vivo against the influenza A H1N1 strain (see below). These studies provide a preliminary indication that the
various influenza viruses may have limited ability to escape these nanoviricides drugs via mutations and other changes. The choice
of ligands we have performed in such a fashion that the potential for a virus strain to mutate and escape the nanoviricide drug
and still remain a serious cause of disease, is minimized. Further studies are planned.



In Vivo Efficacy Studies - Influenza



The preclinical animal testing, performed
to study the efficacy (effectiveness) of the test nanoviricide (anti-human influenza, H1N1) substances, revealed potential for
development as drugs for the reasons delineated below. Several separate and distinct sets of experiments were performed to address
different questions regarding efficacy.



Certain sets of experiments were conducted
to determine the destruction/protection of the animal organs. There were ten animals per group and positive and negative controls
were employed. Lethal infectious challenges of H1N1 influenza virus were administered, followed by treatment with nanoviricides
after a significant delay. The active substances appeared to have protected the organs so that there were no histological (microscopic
tissue) changes to the internal organs of the treated animals. Highly significant tissue damage was found in the internal organs
of the unprotected (no nanoviricide treatment) groups.



24







Another set of experiments was performed,
again on five separate groups each containing ten animals where the viral load was determined in the animals. The findings revealed
that the viral load (number of viral particles per cubic millimeter) in the treated animals was significantly lower than that found
in the control animals.



These initial animal findings suggested
that the test nanoviricide compound was an effective treatment for human influenza in mice and that the concept of using a nanoviricide
as a treatment for certain viral illnesses was a valid one and was deserving of further study. In more scientific terms, the statistical
test was met for validity of the findings and these findings could be considered statistically significant. Thus, in statistical
terms, one could say that the null hypothesis, that is the statistical likelihood that the observed result was due to chance and
not the effect of the drug, was rejected.



In Vivo Efficacy Studies - Influenza
- Optimized Drug Candidates Led to 100% of Mice Treated with Nanoviricides Survival for Full Study Duration, and a Viral Load Reduction
of 1,000-times greater than with Oseltamivir



All but the antibody-based anti-influenza
nanoviricides have been tested in mice in an aggressive study involving extremely high levels of infection with a common influenza
strain called H1N1. This study was conducted by Dr. Krishna Menon, KARD Scientific, Inc.. The results indicate that most of the
nanoviricide nanotechnology-based drug candidates were substantially more efficacious than Oseltamivir (Tamiflu®). Initial
unpublished data suggest that this earliest nanoviricide anti-influenza drug candidate may be as much as 8 to 10 times (800% to
1,000%) superior to Tamiflu in common influenza.



Additional studies have been performed
in the same highly lethal mouse model with H1N1 infection wherein all the mice treated with Oseltamivir died within 151.4±1.0
hours, at which point 100% of the mice treated with a nanoviricide using an improved sialic-acid-based ligand as well as 100% of
the mice treated with a nanoviricide made using a ligand designed against the high path site of highly pathogenic influenzas including
H5N1 were still surviving. Mice treated with H5N1-based nanoviricide survived until 186.0±1.4 hours, whereas those treated
with sialic-acid-based drug candidate survived until 190.0±3.7 hours in this test. The control, untreated mice died within
119.0±0.6 hrs. Oseltamivir is the active ingredient of Tamiflu®. It is estimated that the Tamiflu dose would need to
be increased by much more than ten times (i.e. much more than 1,000%) to match the efficacy of this sialic-acid-based nanoviricide
drug candidate. These estimates are very preliminary in nature.



From this unpublished data, we have concluded
that the results are statistically significant with a p<0.003.



Virus Load in lungs of lethally infected
animals was reduced significantly as well. The virus load in lungs of infected animals was reduced to 92±21 pfu/ml by the
H5N1-based candidate and 119±18 pfu/ml by the sialic-acid-based candidate in this study. These are very low levels of virus
load. The control untreated mice had a viral load of 946± 115 pfu/ml at this sampling point. Thus, the reduction in viral
load was approximately 1 log units for both of these candidates. Virus load reduction estimates depends upon various factors. Improvement
in dosing regimen may be expected to provide a further reduction in viral load.



We further improved the chemical nature
of the ligand using information from rational drug design in silico studies and developed new ligands. Nanoviricides based on these
new ligands were tested in the same totally lethal animal model study as above. We reported some of the results from this study
in late November, 2009.



All of the mice treated with the new anti-influenza
nanoviricides were surviving even when all of the mice from the Oseltamivir treated group had died. The new version of FluCide
drug candidate extended the lifespan of lethally infected mice to 334±11 hrs. (or 14 days) on average. In contrast, mice
treated with an extended Oseltamivir protocol (twice daily until death) survived for 193±3 hrs. (or 8 days) on average.
Control infected mice survived for only 121±2 hrs. (or 5 days). FluCide was given as an IV injection, on alternate days,
for five treatments. Oseltamivir was given as oral, twice daily, each at 20mg/kg through life (or 14 treatments). Increased length
of Oseltamivir treatment led to an increase in survival of this group compared to our previous study. Viral load at 120h was reduced
in the Oseltamivir treated group to only about half of (0.51x) that in untreated control. In contrast, viral load reduction at
this time point in the nanoviricide treated group was approximately 0.13x that of untreated control, an improvement in viral load
reduction by nearly a factor of four.



We performed another drug candidate optimization
study in August 2010. In this study, all of the mice treated with the new anti-influenza nanoviricides continued to survive long
after all of the mice from the Oseltamivir treated group had died. The best of these drug candidates extended the lifespan of lethally
infected mice to 435± 5 hrs. (or 18 days) on average. In contrast, mice treated with an extended Oseltamivir protocol (twice
daily until death) survived for 188±1 hrs. (or 7.8 days) on average. Control infected mice survived for only 121±1
hrs. (or 5 days). FluCide was given as an IV injection, on alternate days, for nine treatments. Oseltamivir was given as oral,
twice daily, each at 20mg/kg through life (or 14 treatments). Viral load at 108h was reduced in the Oseltamivir treated group to
only about half of (0.51x) that in untreated control. In contrast, viral load reduction at this time point in the best nanoviricide
treated group was approximately 0.03x that of untreated control, an improvement in viral load reduction by nearly a factor of 30,
or 1.5 logs of viral load reduction.



Of great significance is the fact that
the viral load was not only brought down by a factor of greater than 1,000-fold, but also that this reduced viral load was maintained
by the nanoviricide treatment throughout the observed period of 19.5 days.



25







We were able to declare a clinical candidate
in this drug program following the next drug candidate optimization study. In this study, three of the nanoviricides drug candidates
enabled the lethally influenza-infected mice to survive for the near total duration of the study (21 days). One group survived
beyond study duration, for 22 days. In contrast, Oseltamivir treated animals died in 8.1 days, and untreated animals died in 5.2
days.



Viral load at 108 h was reduced from untreated
control in the Oseltamivir group to only a factor of 0.7, whereas the three nanoviricide groups showed at least 1,000-fold to 2,000-fold
(greater than 3 logs) viral load reduction compared to untreated control. At 180h, viral load in the three best nanoviricide treated
groups was reduced at least 1,800-fold (greater than 3.2 logs) compared to that in the Oseltamivir group. Viral load in nanoviricide
treated groups continued to hold at the low levels even at 19.5 days post-infection.



Lung plaque count at 108h in these nanoviricide
treated groups was nearly zero, as compared to a relative count of 40±2 in untreated animals, and 19±3 in Oseltamivir
treated animals. The lung plaque count in nanoviricide treated animals continued to remain at a near zero value (1.5±1,
or less than 2 in a sum of three fields) even at 19.5 days post-infection. Lung plaque area trended the same way. The plaques are
caused by viral infection resulting in death of lung cells. Similarly, the lung weight remained at normal throughout the course
in the three groups of nanoviricide-treated animals, whereas it more than doubled in the case of untreated animals (at 108h) and
Oseltamivir treated animals (at 180h). Exudate filling the lungs and local swelling is expected to lead to an increase in lung
weight when infected.



Four days post-virus infection, animals
treated with three of the optimized FluCideTM nanoviricide drug candidates exhibited a substantial reduction in both eosinophils
and overall leukocytes in lung tissue as compared to untreated infected control animals. Further, this reduction of damaging immune
system cells in lung tissue was found to persist over the entire duration of study. In contrast, animals treated with Oseltamivir
(Tamiflu®, Roche) initially showed reduced eosinophil and leukocyte counts that rapidly rose to the level of untreated infected
animals. Eosinophil expansion occurs in response to a viral infection, and can be indicative of a viral infection.



Various types of leukocytes also increase
in response to a viral infection. These phenomena are part of the normal immune response to the infection. In severe influenza
cases, it is thought that patients can go into a stage called “cytokine storm syndrome”. This may be thought of as
an all-out attack by an expanded army of white blood cells in response to an uncontrolled viral infection. In an attempt to control
the viral infection, the immune system attacks the infected cells and damages nearby normal cells, possibly leading to severe lung
damage that may be potentially fatal.



Thus, treatment with the optimized FluCide
drug candidates appeared to protect against the complete cycle of influenza virus infection, virus expansion and spread of infection
in the lungs that follows the initial virus infection. In addition, possibly as an effect of keeping the viral infection controlled,
treatment with nanoviricide drug candidates also appeared to protect against the damaging effects of overactivation of the immune
system, including leukocyte penetration, eosinophil expansion, and lung damage. Thus, the nanoviricide drug candidates appear to
control the viral load infection strongly thereby protecting the patient from the potentially fatal “cytokine storm”
syndrome.



These results led us to declare one of
the three best nanoviricide candidates as a clinical candidate.



This study clearly indicated that our clinical
candidate under the FluCide program, NV-INF-1, should be highly effective in the treatment of very severe forms of influenza. We
anticipate that it will be effective against all strains of influenza viruses, given the broad-spectrum, sialic-acid-mimetic nature
of the ligand. We have therefore been able to consolidate our anti-Influenza drug programs into a single drug program against all
influenzas, be it common or seasonal influenza, epidemic severe influenza such as H1N1/2009/”Swine Flu”, highly lethal
bird flu H5N1, or other influenza virus type/strain. We believe that the same drug would be effective by adjusting the dosage parameters
against most if not all forms of influenzas.



A single dose treatment of out-patient
influenza with FluCide appears very likely, based on the results of these studies. When a person present with the first signs of
influenza, the medical professional can give a single injection. In most cases no follow on treatment would be needed. This has
several great advantages. Patient compliance, a major issue in antiviral therapy, becomes a non-issue. In addition, during a pandemic,
the patient load on medical services is very high. Single treatment becomes a very attractive option.



For hospitalized patients, we plan on developing
a solution that gets incorporated in a “piggy-back” fashion into the fluid infusion setup that is already in use. This
simplifies hospital procedures and ensures that the intended dose of drug is fully administered.



Considering that the preclinical data for
Oseltamivir and for peramivir are similar in terms of effect on survival or time course, it is clear that our nanoviricides may
be expected to be far superior to peramivir as well.



26







Preliminary Efficacy Studies In Vivo
– Viral EKC



Viral EKC, or Viral Epidemic Kerato-Conjunctivitis
is a severe pink eye disease that lasts for several days with painful discharge causing sticky eyes. In addition, a few percentage
of the recovered patients experience permanent blurred vision or partial loss of vision due to the presence of “immuno-precipitates”
that occur as a result of the body’s immune response to the virus. Approximately 50% of all EKC cases are viral; the remaining
being caused by bacteria. Bacterial EKC is treatable with antibiotics. There are no current treatments against Viral EKC (“EKC”).



In a preliminary rabbit eye animal study,
we tested two different nanoviricides against EKC caused by infection with Adenovirus 5, a well-known causative agent. The virus
was supplied by the CDC. Controls of uninfected, untreated eyes, of infected, untreated eyes, and of infected eyes treated with
the standard eye wash formulating solution, were also part of the experiment. Treatment with eye drops of nanoviricides was started
15 hours post-infection, well after the disease had set in, and was continued twice a day for ten days. On the third day, eyes
treated with nanoviricide B were completely cleared up with no redness, stickiness, exudate, or furry eyebrows. The other nanoviricide
was slightly less effective. The eyes in control groups in contrast showed all classic signs of infection throughout the due course
of disease. Further examination has indicated that treatment with nanoviricide B resulted in all eyes being completely free of
sub- epithelial filtrate and immuno-precipitate formation, whereas eyes in the control groups exhibited SEI and immuno-precipitates
as expected.



The study concluded that both nanoviricide
B and nanoviricide C were highly effective against adenoviral EKC and of these, nanoviricide B was substantially superior. Further
studies are scheduled.



In addition to adenoviruses, herpesviruses
form another important cause of viral EKC as well as additional related diseases of the eye. We plan to extend our studies to herpesviral
eye infections in the near future.



Preliminary Efficacy Studies In Vivo
– HIV



In a preliminary animal study against HIV
in a well established animal model, SCID-hu-Thy/Liv mice, we have previously tested a number of nanoviricides against a positive
control (that is known effective drug) that comprised the clinically employed well established HAART therapy of oral three drug
combo (AZT+3TC (lamivudine) + Efavirenz (a non-nucleoside reverse transcriptase inhibitor (NNRTI)). Several additional parameters
were tested and indicate significant benefit of nanoviricide therapy.



Treatment with HAART and anti-HIV nanoviricides
resulted in a significant reduction in viral load in the Thy/Liv implant as determined by qPCR and viral particle counts in aspirated
implant lymphocytes by EM. qPCR analysis showed that HAART and nanoviricide treatment reduced the implant viral load equally well,
with nanoviricide results showing slight superiority. The aspirated lymphocytes showed substantially lower viral particle burden
in nanoviricide treated groups, as compared to HAART-treated groups. The EM data are considered preliminary and we do not draw
any conclusions rather than they support the viral load reduction studied by qPCR.



Similar to the reduction in viral load,
both HAART and nanoviricide treatment had positive long term effects on reducing thymocyte depletion as shown by the proportion
of CD4+CD8+ thymocytes (double-positive, or “DP”) in the 5th week post-infection. Implants in the HAART and nanoviricide
treatment groups exhibited 80-85% CD4+,CD8+ DP cells while the vehicle control groups had only approximately 30% CD4+CD8+ thymocytes.



The equal treatment effect was produced
by administering only 150 mg/kg nanoviricide, as opposed to a total of 4,200 mg/kg of HAART drug load. Thus, nanoviricides were
more than 25X (2,500%) superior to the HAART cocktail on a dosage level basis. In addition, the nanoviricide therapy was given
only during the first week whereas HAART therapy was continued for 42 days. Thus, there is a significant possibility that extending
nanoviricide treatment further could have far more significant benefits than observed in this study.



No adverse events were observed with nanoviricide
therapy. The physical appearance of the animals was much better in the nanoviricide treated animals than in the HAART treated animals.
These preliminary findings suggest that nanoviricide therapy was safe, well tolerated, and did not result in any adverse events.
HAART therapy in humans is known to be associated with significant adverse events including nausea, weight loss, and lipid redistribution,
among other factors. The very large dosages of drugs in HAART therapy are thought to lead to various adverse events.



In summary, treatment of SCID-hu mice with
nanoviricides following HIV-1 Ba-L infection of hu-Thy/Liv implants resulted in significantly reduced viral load and significantly
improved double positive, CD4+,CD8+ thymocyte proportion. These effects appear to have resulted in improved survival and reduced
body weight loss. Importantly, comparison with mice treated with the HAART cocktail for the duration of the study revealed that
the nanoviricide anti-viral agents were comparable or slightly superior to HAART treatment for all parameters evaluated. It is
important to note that nanoviricides were single administrations only at 24, 48 and 72 hours post- infection while the HAART cocktail
was administered daily for the duration of the study. The nanoviricide total drug load was only 150 mg/kg as opposed to a total
HAART drug load of 4200 mg/kg, thus equivalent effects were observed with nanoviricide drug candidates at ~1/25th of the HAART
drug load. It would be important to determine if extended nanoviricide administration shows significantly greater efficacy. Additionally,
we are not aware of any anti-HIV drug candidate that is equivalent or superior by itself alone to the HAART cocktail.



27







The HAART cocktail we used consisted of
AZT+3TC+Efavirenz, at 40 + 20 + 40 mg/kg, respectively, administered p.o. 1x daily for the duration of the study, beginning 24
hrs. after virus inoculation, for a total drug load of 4,200mg/kg. In contrast, the nanoviricide treatments were given only during
the first week, at days 1, 3, and 5 post-infection, at 50 mg/kg (tail vein injection), for a total drug load of 150 mg/kg. We intend
to increase the extent of nanoviricide drug treatment in the future studies.



Because of the high effectiveness of the
three different nanoviricides, we were not able to select the best candidate in this study. We therefore devised a new study. In
this study, some of the anti-HIV ligands from the previous study, and some newly designed anti-HIV ligands were attached to the
nanomicelle. However, the density of ligands attached was kept low, anticipating that this would allow discrimination between the
efficacy of these ligands.



In this study, we found that the effectiveness
of one of the nanoviricides we tested was substantially comparable to the three-drug HAART cocktail. Both HAART and nanoviricide
treatment had positive long term effects on reducing thymocyte depletion as shown by the proportion of CD4+CD8+ thymocytes (double-positive,
or “DP”) at 48 days post-infection. Implants in the HAART and nanoviricide treatment groups exhibited 75-85% CD4+,CD8+
DP cells while the vehicle control groups had only approximately 30% CD4+CD8+ thymocytes. Similarly, viral load in the nanoviricide
treated group was reduced by >0.7 logs, slightly less than that with the HAART cocktail.



Most significantly, the nanoviricide treatment
was given on alternate days through day 20 only, and then stopped. HAART treatment continued daily for the 48 days of study duration.
In spite of this, the viral load in the nanoviricide treated groups did not increase at 48 days as compared to that at 24 days.
This indicates a strong and sustained viral load reduction with the nanoviricide treatment. We had observed a similar effect in
the earlier study as well.



No adverse events were observed with the
nanoviricide therapy, in contrast to the HAART therapy.



This nanoviricide was based on a new ligand
that we have designed. We design ligands based on mimicking the fashion in which the CD4 protein binds to HIV gp120 using molecular
modeling. We believe that our biomimetic approach is based on conserved features of this binding interaction. We therefore believe
that productive HIV mutations are less likely against our nanoviricides as compared to other approaches. We are now working on
improving this new nanoviricide drug candidate further, to increase its potency.



Intermittent treatment protocols, such
as once per month or once per week become feasible when sustained drug effect is maintained. Sustained drug effect is a holy grail
for the treatment of long lasting diseases. Sustained drug delivery and controlled drug delivery are well established fields. We
had always believed that we should expect sustained drug effects, because of the polymeric nature of the TheraCour® material
that forms the base of our nanoviricides. We are now seeing clear indications of this in various studies.



Patient compliance is a major issue in
HIV/AIDS treatment. This is because of the large numbers of drugs that must be taken in large quantities, and several times a day.
Complicating this is the fact that these drug treatments cause nausea, gastrointestinal side effects, and other adverse effects.
Thus, intermittent treatment is a very important goal in developing novel HIV/AIDS therapeutics.



We believe that HIVCide would be a highly
effective anti-HIV drug, given our results. We have used the standard humanized mouse model for testing. In this model, the immune
system of the mouse is replaced by human immune system. Then HIV infection is given. HIV infects the human immune system. The antivirals
are then given and tested for their effect on the interaction of HIV with the implanted human immune system. This model is known
to be a good predictor for anti-HIV drugs that work in humans.



HIVCide works by a very different mechanism
than the current HAART drugs in the drug cocktail, NRTI, NNRTI, Protease Inhibitors, and now, Integrase Inhibitors. Thus, HIVCide
is expected to give much stronger effects in combination with such drugs. In addition, for patients who have failed current drug
therapy, HIVCide would be an attractive option.



We believe that HIVCide would enable a
“Functional Cure” of HIV/AIDS. Current combination therapy is capable of bringing the HIV viral load in patients to
extremely low levels. However, mutational resistance emerges and the therapy eventually fails. This can be rescued to some extent
by drug substitution, until this strategy also fails. We believe that HIVCide is based on a drug strategy that potentially minimizes
such failures, since HIV mutations that result in the mutant not being attacked by HIVCide would also be deficient in binding to
the CD4 receptor on T cells. Thus, such mutants would not be capable of causing a productive re-infection cycle. Thus, HIVCide
treatment , either as a single agent or in combination with other drugs, would lead to significantly reduced viral load and reinfection
within the body. The patient would then be able to lead a normal life, and possibly not even have sufficient viral load to be capable
of passing on the infection to others. In addition, the sustained effect of HIVCide after stopping therapy by itself indicates
long durations of treatment free life would be feasible in this scenario.



28







Preliminary Efficacy Studies In Vitro
(Cell Cultures) – HIV



We reported in June, 2010, that our anti-HIV
drug candidates demonstrated efficacy in the recently completed cell culture studies using two distinctly different HIV-1 isolates.
The studies were performed in the laboratory of Carol Lackman-Smith at the Southern Research Institute, Frederick, Maryland.



This in vitro or cell culture study validated
the in vivo anti-HIV activity of the nanoviricides® as determined in a SCID/hu Thy/Liv mouse model by KARD Scientific, a contract
research organization, and previously reported by the Company.



Significantly, a subset of the anti-HIV
nanoviricides tested in cell culture models at Southern Research had very similar activity against two distinctly different isolates
of HIV-1, viz. Ba-L and IIIB. The Company had designed the ligands using reported gp120 structures of several HIV-1 strains.



The HIV-1 isolate Ba-L was the same as
that employed in the Company’s previously reported animal model studies. This virus binds and infects cells expressing the
human receptor CCR5 in addition to the well-known receptor CD4. In contrast, HIV-1 IIIB is a CXCR4-tropic virus that infects cells
expressing the human receptor CXCR4 in addition to the receptor CD4. The same viral gp120 or SU glycoprotein is involved in binding
to both co-receptors, viz. CD4 and either CCR5 or CXCR4. HIV that binds to CD4 and to at least one other co-receptor, such as CXCR4
or CCR5, results in productive infection leading to disease, and eventually AIDS.



It has been a formidable challenge for
researchers in the field to develop an anti-HIV drug that works against all subtypes and strains. Several anti-HIV drugs and drug
candidates have demonstrated significant activity against only one of these various HIV-1 subtypes. In addition, HIV mutates, changing
its genome and protein structure during an active infection. Mutants resistant to the patients’ treatment drugs can develop
and proliferate, leading to failure of therapy, including the HAART regimen.



The Company believes that its strategy
of designing ligands that are close mimics of the invariant binding site on CD4 has resulted in nanoviricides that are active against
multiple HIV-1 subtypes. These results suggest that mutations in HIV-1 may be unlikely to result in significant resistance to an
anti-HIV nanoviricide.



Based on these anti-HIV studies, the Company
believes that it has a strong lead drug candidate against HIV. If the preliminary results are substantiated in further studies,
and later in human clinical trials, it would be the first time ever that a new drug in development would have been found to be
superior to the entire cocktail of three drugs called HAART.



At present, there are several drugs against
HIV. These have led to HIV becoming a chronic, treatable, disease that can be controlled through the lifespan of an infected individual
until an episode occurs. An episode is usually characterized by development of resistance against the therapy given. Drugs in the
cocktail are then substituted or additional drugs added to provide additional benefit.



To the initially developed three drug classes,
NRTI, NNRTI, and PI, recently three new classes have been added. These are EFI (Entry/Fusion Inhibitors) such as FuzeonTM
(Roche), II (Integrase Inhibitors) such as IsentressTM (Merck), elvitegravir (Gilead), and most recently, CCR5-blockers, maraviroc
(Pfizer). Of these, NRTI, NNRTI, PI, and II act intracellularly, blocking different steps in the virus replication. EFI block the
early step of virus entry and fusion with a human cell. CCR-5 blockers inhibit viral entry by blocking one of the receptors on
the human cells used by the virus. However, HIV can also use CXCR4 in addition to or instead of CCR5, and viruses that do so cannot
be affected by CCR5-blockers. Current standard of care is a three-drug combination called HAART. This leads to significant viral
load control until resistance emerges. A recent clinical trial has established the validity of an approach that combines an II
as a fourth drug into the original three drug combination cocktail. Fuzeon showed significant toxicity, potentially due to its
action against human cells, and has not gained much acceptance, with a substantial number of patients falling off therapy due to
side effects.



None of these drug classes alone cause
benefits equivalent to the combination of the three drugs of the HAART cocktail. Nanoviricides are expected to act by a completely
novel mechanism that is expected to result in complete dismantling of the extracellular virus load, rather than simply inhibition
of entry of a small fraction of the extracellular virus load. Thus, nanoviricides mechanism is distinct from and superior to that
of EFI and CCR5-blockers, as well as antibody cocktails. In addition, nanoviricides can be combined for significant geometric increase
in benefit with agents that act intracellularly such as the NRTI, NNRTI, PI and II class of drugs. Thus we believe that nanoviricides
will become a significant tool in the arsenal against HIV.



If the viral load reduction seen in the
preliminary animal study by a nanoviricide in comparison with HAART therapy proves to be predictive of benefit, then we can estimate
that the anti-HIV nanoviricide alone or perhaps in combination with one or more components of the existing arsenal of drugs may
provide what has been called a “functional cure” against HIV. A total cure is a state in which all virus, including
copies of its genome integrated into human cells, is eliminated from the body, so that the virus infection does not exist and cannot
recur. A functional cure can be paraphrased as a drug treatment which practically eliminates substantially all circulating virus,
so that therapy can be stopped until a new recurrence happens after a significantly prolonged time interval. Thus, patients can
live worry- free lives for years before requiring treatment again.



29







Preliminary Efficacy Studies In Cell
Cultures – HSV-1



We have successfully tested certain nanoviricide
drug candidates in a cell culture model of HSV-1 infection. The study was designed as a virus neutralization study. This testing
was conducted by TheVac, LLC laboratories at the Louisiana Emerging Technology Center located within the Louisiana State University
(LSU) campus in collaboration with the LSU School of Veterinary Medicine.



Four different nanoviricides showed greater
than 10,000-fold (>99.99% or 4-logs) reduction in virus quantity compared to untreated controls in a cell culture assay employing
the LSU proprietary green-fluorescent-protein-tagged (GFP) modified HSV-1 McKrae strain. Virus quantity was determined in terms
of pfu or plaque forming units, as is customary.



In August 2010, we reported on additional
cell culture studies on our HSV-1 and HSV-2 nanoviricide drug candidates performed in Professor Ken Rosenthal’s Lab at the
NEOUCOM. These studies confirmed the results obtained in testing at TheVac, LLC previously.



The Rosenthal Lab studies demonstrated
almost complete inhibition of the HSV-1 H129 strain. The extent of inhibition was also found to be dose-level dependent. The H129
strain is an encephalitic strain that closely resembles a clinical isolate; it is known to be more virulent than classic HSV-1
laboratory strains.



These nanoviricide drug candidates are
designed to act against all herpes simplex virus strains, including HSV-1 and HSV-2. The Company has scheduled additional in vitro
studies. Animal studies have also been scheduled.



Preliminary Efficacy Studies In Cell
Cultures – Dengue



In June, 2010 the Company reported that
its anti-Dengue drug candidates demonstrated significant efficacy in preliminary cell culture studies. The studies were performed
in the laboratory of Dr. Eva Harris, Professor of Infectious Diseases at the University of California, Berkeley (UC Berkeley).



Several of the anti-Dengue nanoviricides®
demonstrated a dose-dependent inhibition of Dengue virus infectivity in two distinctly different cell culture models of dengue
virus infection. These studies employed the serotype dengue virus 2. The Company believes that these nanoviricide drug candidates
mimic a common natural host cell receptor by which the four different dengue virus serotypes bind to the body’s host cells,
thus causing disease. The virus is “fooled” into thinking it has attached to its target cell and instead enters a nanoviricide
nanomicelle, it is believed. A nanoviricide would thus stop the spread of the viral infection to new uninfected cells.



Preliminary Efficacy Studies In Vivo
– Dengue



In late June, 2010, the Company reported
that its anti-Dengue drug candidates demonstrated significant protection in the initial animal survival studies of Dengue virus
infection. The studies were performed in the laboratory of Dr. Eva Harris, Professor of Infectious Diseases at the University of
California, Berkeley (UC Berkeley).



Treatment with one of the anti-Dengue nanoviricides®
led to survival of 50% of the animals for the duration of study in the ADE model (see below). In addition, animals treated with
several anti-Dengue nanoviricides survived longer than the control animals treated with vehicle alone. This ADE model of infection
is uniformly fatal in 100% of the infected animals within 5 days after infection.



Dr. Harris is a leading researcher in the
field of dengue viruses. Her group has developed a unique animal model for the most severe and potentially fatal form of Dengue
virus infection in humans, Dengue Hemorrhagic Fever/Dengue Shock Syndrome (DHF/DSS). The model emulates the “Antibody-Dependent
Enhancement (ADE)” of Dengue virus infection in humans that is believed to lead to DHF/DSS.



The Company has developed a library of
chemical ligands that are expected to bind to the dengue virus envelope proteins of several different subtypes of dengue viruses.
These ligands were developed using the results of sophisticated, well established, molecular modeling software. A number of candidate
nanoviricides that are capable of attacking the dengue virus were created using these ligands. A “nanoviricide” is
a chemical substance made by covalently attaching a number of copies of a virus-binding ligand to a specifically designed, patented
(and patent pending) polymeric micelle structure. It is believed that when a nanoviricide binds to a virus particle,
the interaction would extend to the binding of a large number of ligands to the virus surface, and the flexible nanomicelle would
then engulf the virus, rendering it incapable of infecting a cell.



Dengue virus is a member of the Flaviviridae
family of viruses, some of which are often spread by ticks and mosquitoes. Other important viruses in this family include Yellow
Fever virus, West Nile virus and Hepatitis C virus. The market for novel treatments for Hepatitis C is estimated to be in the billions
of dollars in the US alone.



When a person is exposed to dengue for
the first time, the disease usually is not severe. When the same person is later infected by a different dengue serotype, the body
produces antibodies against the previous dengue serotype. The new dengue virus uses these antibodies to infect more cells, thus
leading to severe dengue disease. Such a secondary infection may lead to dengue hemorrhagic fever or dengue shock syndrome with
high fatality rates. The ADE phenomenon has made development of vaccines and antibody therapeutics against Dengue a tremendous
challenge. A vaccine works by creating antibodies against the included serotypes.



30







Currently there are no approved vaccines
for the prevention of dengue, nor drugs for treatment of dengue virus infection. The worldwide market size for an effective anti-dengue
treatment may be as large as that for Hepatitis C virus treatment, reaching billions of dollars, based on current population exposure
data. Dengue, dengue hemorrhagic fever and dengue shock syndrome are emerging as serious global health problems. Dengue is endemic
throughout much of the world and now threatens over 3 billion people world-wide or 40% of the world’s population. Because
of its world-wide distribution, dengue is considered an emerging threat in the United States. Dengue is officially considered a
“neglected tropical disease” by the World Health Organization. About 50-100 million people are infected by dengue virus
every year. Recently, the government of Cali, Columbia declared a dengue emergency because of the number of dengue infections and
deaths. Globalization and climate change along with changes in the ecology of the virus-carrying mosquito are accelerating the
spread of the virus. Without proper treatment, DHF fatality rates can exceed 20%. (Source: WHO Dengue and dengue hemorrhagic fever
Fact Sheet No. 117, March 2009; http://www.who.int/mediacentre/factsheets/fs117/en/ ).



Based on these studies, the Company believes
that a broad-spectrum nanoviricide that is highly effective against all four dengue serotypes is now feasible, based on the current
data. Such a drug would circumvent the problems caused by a phenomenon called “Antibody-Dependent-Enhancement” or “ADE”.
ADE is thought to result in severe dengue disease syndromes such as dengue shock syndrome (DSS) and dengue hemorrhagic fever (DHF).



Preliminary Efficacy Studies In Vivo
– Rabies



As part of our agreement with Vietnam that
enabled us to perform studies on various H5N1 strains and gave us access to anti-H5N1 antibodies from multiple host species, we
have undertaken the development of anti-rabies drug candidates.



We performed two separate animal studies
using a lethal mouse model in which mice were infected intracerebrally with 1,000LD50 of rabies challenge standard virus strain.
Each group had 10 animals and there were 36 groups all together. In both studies, three different nanoviricides led to significant
indefinite survival of mice. In the intracerebral virus-neutralization mechanism study, two of the tested nanoviricides led to
30% of the mice surviving indefinitely, and one led to 20% of the mice surviving indefinitely. In the intraperitoneal nanoviricide
administration route study, two of these nanoviricides led to 20% of the mice surviving indefinitely. A 20% or greater population
survival is considered statistically significant in this study. BayRab®, a commercial antibody used for post-exposure prophylaxis
of rabies, gave 0% population survival rate in both studies. A nanoviricide made using antibody-based ligand followed the same
course as the antibody itself, and gave a 0% population survival rate.



These studies appear to be the first ever
in which a non-vaccine agent led to a significant population survival extent in rabies-infected mice in any high lethality infection
protocol. Two of the three nanoviricides that led to high population survival rates in these studies are being further developed
under the RabiCide-I(tm) project. Further studies are planned.



On July 3, 2008, the Company signed an
agreement with the Centers for Disease Control and Prevention (CDC, Atlanta, Georgia) for further animal studies. If these studies
meet the goals and expectations of the CDC Rabies scientists, it is anticipated that the Company will be able to develop an anti-rabies
nanoviricide drug. The Company anticipates that such a drug could be used for post-exposure prophylaxis, replacing costly antibody
therapies. The Company also anticipates that additionally, a post-infection rabies treatment drug may also be possible, if the
testing results so indicate.



An estimated 10 million people receive
post-exposure treatments each year after being exposed to rabies-suspect animals. About 30,000 people in the United States receive
both pre-and post-exposure prophylaxis every year, at a cost of over $1,000 per treatment course. The annual number of deaths worldwide
caused by rabies is estimated to be 55,000, mostly in rural areas of Africa and Asia, according to a recent World Health Organization
report. The market size for post-exposure prophylaxis for rabies has been estimated at $300 million to $500 million annually.



Rabies, a uniformly fatal disease found
primarily in Africa and Southeast Asia, had never before been successfully treated with drugs. There are currently no FDA-approved
treatment options for rabies once symptoms develop. In addition, the Company believes that significantly increased survival rate
of these lethally infected animals is possible in the dose-ranging studies to follow.



Preliminary Efficacy Studies In Vitro
and In Vivo – Ebola/Marburg



In July 2010, our collaborators at the
United States Army Medical Research Institute of Infectious Diseases (USAMRIID) presented the data on evaluation of anti-Ebola/Marburg
nanoviricides. Significant efficacy was reported to have been achieved in cell culture studies. Animal studies indicated improvement
in lifetime in the uniformly lethal mouse model. Further improvement in chemistry and dosage levels may be expected to lead to
significant survival.



31













The Company plans to improve the drug candidates
further. Ebola is a very “smart” virus. In order to evade the antibody response, it creates portions of its glycoprotein
that is on the virus surface in copious quantities and exudes them. The soluble glycoprotein serves as a decoy reducing the effectiveness
of neutralizing agents such as antibodies. The success of nanoviricides in cell cultures as well as the limited success achieved
in the very first animal study is in spite of these effects. We therefore are confident that a Broad-Spectrum anti-Ebola effective
nanoviricide that works against all Ebola and Marburg virus types, as well as possibly several other hemorrhagic viruses that bind
to cells through similar mechanisms is quite feasible.



Considering that Ebola is not a commercially
viable drug development target, we continue to actively pursue federal funding opportunities for this project.



A Note on Our Studies to Date



Current pharmaceutical industry work in
antiviral therapy generally results in small efficacy improvements. Thus, in the case of influenza, peramivir(TM), (BioCryst)
was reported as having approximately equal efficacy to Oseltamivir (Tamiflu, Roche), in the most recent studies reported. In these
clinical studies, peramivir was administered as an IV infusion at about 300mg or 600mg. IV infusion is a cumbersome process requiring
hospital based administration. Previously, it was suggested that peramivir may have a superior safety profile and thus may enable
use of large doses (compared to Tamiflu). Peramivir previously failed its Phase II clinical trials, and BioCryst stated that this
may have been due to the use of needles of insufficient length in the Phase II study. Peramivir has since been approved in Japan.



These levels of efficacy differences between
other product candidates against influenzas and bird flu can be easily seen to be insignificantly small compared to the ones established
in our studies for the nanoviricides tested.



However, it should be noted that all of
our studies to date were preliminary. Thus, the evidence we have developed is indicative, but not considered confirmative, of the
capabilities of the nanoviricides technology's potential. These results merely lead us to the next step in the development process.
They have limited relevance when it comes to the FDA regulatory process. Despite such excellent early results, there is a risk
that the nanoviricides may not result in drugs suitable for commercial production.



It must be stressed that the results discussed
above were very preliminary and similar results may not be found on retesting. However, further repeat studies will be necessary
to substantiate and many validate these results.



In statistics, a result is called significant
if it is unlikely to have occurred by chance. "A statistically significant difference" simply means there is statistical
evidence that there is a difference; it does not mean the difference is necessarily large, important or significant in the usual
sense of the word. For a detailed discussion of the significance of the p-value, please see http://en.wikipedia.org/wiki/P-value
..



In traditional frequentist statistical
hypothesis testing, the significance level of a test is the maximum probability, assuming the null hypothesis, that the statistic
would be observed. Hence, the significance level is the probability that the null hypothesis will be rejected in error when it
is true (a decision known as a Type I error). The significance of a result is also called its p-value; the smaller the p-value,
the more significant the result is said to be. Significance is represented by the Greek symbol, α (alpha). Popular levels
of significance are 5%, 1% and 0.1%. If a test of significance gives a p-value lower than the α-level, the null hypothesis
is rejected. Such results are informally referred to as 'statistically significant'. For example, if someone argues that "there's
only one chance in a thousand this could have happened by coincidence," they are implying a 0.1% level of statistical significance.
The lower the significance level, the stronger is the evidence.



A very small α-level (e.g. 1%) is
less likely to be more extreme than the critical value and so is more significant than high α-level values (e.g. 5%). However,
smaller α-levels run greater risks of failing to reject a false null hypothesis (a Type II error), and so have less statistical
power. The selection of an α-level inevitably involves a compromise between significance an d power, and consequently between
the Type I error and the Type II error.



Our experiments have constantly resulted
in the p-value less than 0.003, which makes the tests very accurate, that there are no errors statistically for such an experiment,
and all the values obtained from these experiments are of significance.



Mechanism of Nanoviricides Action



It should be noted that while the nanomaterials
and nanomedicines we are developing are designed with the set of ground rules stated earlier as our design goals, it is generally
not possible to establish whether each of these mechanisms is actually active or whether it is truly responsible for the efficacy
observed.



We believe that mechanisms are guidelines
rather than endpoints. Our study endpoints and development programs are defined for establishing efficacy, safety, and chemical
manufacturing controls, rather than establishing mechanisms of action.



32







Escape Mutants



Escape mutants are a known risk and challenge
to any given anti-viral drug. Our plan is to develop new drugs with modified ligands that attack the new attachment sites of the
escape mutants. The rationale for this is based on the concept that a nanoviricide drug is constructed from several building blocks.
One of these building blocks is the ligand that attaches specifically to the virus. Identifying or creating a new ligand that binds
to an escape mutant enables creating a new drug, simply by replacing the ligand part of a drug already known to be reasonably safe
and efficacious. The Company's scientists have developed strategies for identifying and designing such ligands.



Ligand TuningTM



A very broad-spectrum nanoviricide can
be made by using a ligand that binds to a very large number of types and strains of a given virus. Usually, but not always, it
is possible to identify a ligand that will provide such a broad specificity against a particular virus, or a group of viruses.



Usually, the broader the spectrum of a
ligand, the lower is its efficacy level by itself. Thus, it is always beneficial to develop highly efficacious narrow spectrum
drugs against potentially deadly diseases. Both high efficacy and low efficacy ligands can be combined on the same nanomicelle
for “tuning” the spectrum of activity of the nanoviricide drug.



A Note on US FDA Priority Review Vouchers



The Food and Drug Administration Amendments
Act of September 2007 authorizes the FDA to award a priority review voucher to any company that the FDA has determined is eligible
for priority approval process for a treatment for a neglected tropical disease. The priority review voucher can be traded to another
company in a manner similar to carbon (emissions) credit vouchers. The recipient company can save as much as six months on their
drug review process, and it is anticipated that they would be willing to trade in vouchers with cash benefits to the company developing
drugs against neglected tropical diseases. The regulation became effective as of September 30, 2008.



Economists at Duke University, who proposed
the voucher concept in 2006, have calculated that reduction of the FDA approval time from 18 to six months could be worth more
than $300 million to a company with a top-selling drug with a net present value close to $3 billion. At this level, the voucher
would be expected to offset the substantial investment and risk required for discovery and development of a new treatment for a
neglected tropical disease. (David B. Ridley, Henry G. Grabowski and Jeffrey L. Moe, "Developing Drugs For Developing Countries",
Health Affairs, 25, no. 2 (2006): 313-324; doi: 10.1377/hlthaff.25.2.313; © 2006 by Project Hope. and ( http://blogs.cgdev.org/globalhealth/2007/10/fda_priority_review.php
).



While there is no indication whether NanoViricides,
Inc. can obtain priority review for its drugs against neglected tropical diseases, the high efficacies of our drug candidates lead
us to believe that this may be possible. FDA awards priority review status on the basis of several criteria. NanoViricides, Inc.
is currently working on several neglected tropical diseases, including Dengue fever viruses, rabies, Ebola/Marburg viruses, among
others. Of these, Dengue viruses are explicitly included in the list under this Public Law, and the remaining viruses are eligible
for similar treatment according to the language in the Public Law, at the discretion of the Secretary of Health (Food and Drug
Administration Amendments Act of 2007, P.L. 110–85, Sept. 27, 2007, http://www.fda.gov/oc/initiatives/fdaaa/PL110-85.pdf
).



Significant Alliances and Related
Parties



TheraCour Pharma, Inc.



Pursuant to an Exclusive License Agreement
we entered into with TheraCour Pharma, Inc., (TheraCour), the Company was granted exclusive licenses in perpetuity for technologies
developed by TheraCour for the virus types: Human Immunodeficiency Virus (HIV/AIDS), Influenza including Asian Bird Flu Virus,
Herpes Simplex Virus (HSV), Hepatitis C Virus (HCV), Hepatitis B Virus (HBV), and Rabies. The Company has entered into an Additional
License Agreement with TheraCour granting the Company the exclusive licenses in perpetuity for technologies developed by TheraCour
for the additional virus types for Dengue viruses, Japanese Encephalitis virus, West Nile Virus, Viruses causing viral Conjunctivitis
(a disease of the eye) and Ocular Herpes, and Ebola/Marburg viruses.



In consideration for obtaining these exclusive
licenses, we agreed: (1) that TheraCour can charge its costs (direct and indirect) plus no more than 30% of certain direct costs
as a Development Fee and such development fees shall be due and payable in periodic installments as billed; (2) to pay $25,000
per month for usage of lab supplies and chemicals from existing stock held by TheraCour; (3) we will pay $2,000 or actual costs,
whichever is higher, for other general and administrative expenses incurred by TheraCour on our behalf; (4) make royalty payments
(calculated as a percentage of net sales of the licensed drugs) of 15% to TheraCour Pharma, Inc.; (5) TheraCour Pharma, Inc. retains
the exclusive right to develop and manufacture the licensed drugs. TheraCour Pharma, Inc. will manufacture the licensed drugs exclusively
for NanoViricides, and unless such license is terminated, will not manufacture such product for its own sake or for others; and
(6) TheraCour may request and NanoViricides, Inc. will pay an advance payment (refundable) equal to twice the amount of the previous
months invoice to be applied as a prepayment towards expenses. TheraCour may terminate the license upon a material breach by us
as specified in the agreement. However, we may avoid such termination if within 90 days of receipt of such termination notice we
cure the breach.



33







Development costs charged by TheraCour
Pharma, Inc. for the year ended June 30, 2012, 2011 and 2010 were $2,965,030, $1,250,901 and $1,086,927 respectively, and $6,617,004
since inception. As of June 30, 2012, pursuant to its license agreement, the Company has paid a security advance of $281,775 to
and held by TheraCour Pharma, Inc. which is reflected in prepaid expenses.



No royalties are due TheraCour from the
Company’s inception through June 30, 2012.



TheraCour Pharma, Inc., is affiliated with
the Company through the common control of it and our Company by Anil Diwan, President, who is a director of each corporation, and
owns approximately 70% of the capital stock of TheraCour Pharma, Inc., which itself owns approximately 21.44% of the Common Stock
of the Company.



TheraCour Pharma, Inc. owns 33,360,000
shares of the Company’s outstanding Common Stock and 7,000,000 shares of the Company’s Series A Convertible Preferred
Stock as of June 30, 2012. The Company anticipates the need to procure large quantities of the nanoviricides drug candidates for
the upcoming studies. In order to support this production scale, TheraCour Pharma, Inc., the Company’s largest shareholder
and licensor of the TheraCour® technology that the Company uses in its anti-viral drug development, has initiated a program
to expand its laboratory facilities.



Collaborations and Subcontract Arrangements



All of our agreements provide for the evaluation
of Nanoviricides® substances created and provided by the Company to the Laboratory. In general, the Laboratory is compensated
for certain material and personnel costs for these evaluations. The evaluations involve in vitro and in vivo scientific studies
at the Laboratory using their established protocols. In some cases, the Company provides scientific input regarding certain modifications
to their protocols as may be needed. The Laboratory returns the results and data to the Company. The Laboratory is allowed to publish
the results after allowing time for the Company to protect intellectual property (IP) as needed. The Company sends nanoviricides
as well as positive control (i.e. known therapeutics) and negative control (i.e. known not to work) compounds as needed in a fully
formulated, ready to use form, to the Laboratory. All IP related to the nanoviricide materials, their formulations and reformulations,
and their usage, rests with the Company. Any IP developed by the Laboratory regarding their own know-how, such as laboratory tests,
their modifications, etc. rests with the Laboratory. Joint inventions are treated as per applicable US Laws.



The Company tries to choose the scientific
laboratories with the most appropriate facilities and know-how relating to a particular field for the evaluation of an antiviral
agent developed by the Company. The Company also tries to work with more than one laboratory for the evaluation of an antiviral
agent developed by the Company. The Company also tries to work with more than one laboratory for a given group of viruses whenever
possible. We seek to improve confidence by obtaining independent datasets for corroboration of the efficacy and safety of the nanoviricides
we develop. In addition, the Company is not dependent on a particular Laboratory for the development of any specific drug candidate
in our product pipeline.



To date, the Company has engaged in non-GLP
Efficacy and Safety evaluations in both in vitro (cell culture models) and in vivo (animal models) of our different Nanoviricides®
at different laboratories.



Arrangement with KARD Scientific, Inc.



Owned and operated by Dr. Krishna Menon,
KARD Scientific Inc. of Beverly, Massachusetts, is currently our primary vendor for animal model study design and performance.
KARD operates its own facilities in Beverly, Massachusetts.



NanoViricides has a fee for service arrangement
with KARD. We do not have an exclusive arrangement with KARD; we do not have a contract with KARD; all work performed by KARD must
have prior approval by the executive officers of NanoViricides; and we retain all intellectual property resulting from the services
by KARD.



Dr. Krishna Menon is the Company’s
Consulting Chief Regulatory Officer, a non-executive officer position.



Since inception, lab fees charged by KARD
Scientific for services to the Company total $1,860,037.



34







Collaboration with the Health Ministry
of the Government of Vietnam



On December 23, 2005, the Company signed
a Memorandum of Understanding with the National Institute of Hygiene and Epidemiology in Hanoi (NIHE), a unit of the Vietnamese
Government’s Ministry of Health. This Memorandum of Understanding calls for cooperation in the development and testing of
certain nanoviricides. The parties agreed that the initial target would be the development of drugs against H5N1 (avian influenza).
NIHE thereafter requested that we develop a drug for rabies, a request to which we agreed. The initial phase of this agreement
called first for laboratory testing, followed by animal testing of several drug candidates developed by the Company. Preliminary
laboratory testing of FluCide(TM)-I, AviFluCide(TM)-I and FluCide-HP(TM) against various H5N1 strains in cell culture
were successfully performed at the laboratories of the National Institute of Hygiene and Epidemiology in Hanoi (NIHE). In addition,
animal studies of RabiCide drug candidates were also performed at the NIHE BSL2 facilities. The next stage of the project, animal
testing of the Influenza and H5N1 candidates, has been delayed until the BSL3+ animal facility in Hanoi is ready. The H5N1 testing
will utilize the NIHE’s BSL3 (biological safety laboratory level 3) laboratory. Rabies testing can safely be done at their
BSL2 facility.



Other Collaborations



The Nanoviricides approach depends upon
significant scientific input as well as scientific experimentation during various stages of developments. The Company currently
does not have the facilities to conduct most of the anti-viral studies. The Company’s strategy is to minimize capital outlays
as well as operating costs by engaging external expert teams for our anti-viral testing work. The Company has been successful in
building the necessary relationships to date to effect this strategy. The Company has thereby made and will need to continue to
develop additional collaborations in order to minimize capital outlays.



To date, we have entered into the following
collaborations.



Cooperative Research and Development
Agreement for Material Transfer, dated October 15, 2007, between NanoViricides, Inc. and United States Army Medical Research Institute
of Infectious Disease (“Laboratory”).



The term of the agreement was for one year
initially and extended for an additional year. It has been extended again, based on positive results. The Company shall invent,
develop, and provide to the laboratory, Nanoviricides® that are expected to be capable of attacking a multiplicity of different
Ebola and Marburg viruses. The Laboratory shall assess in vitro and in vivo activity of the anti-Ebola Nanoviricides® provided
against the virus.



There is no payment by the Company to the
Laboratory, nor from the Laboratory to the Company. USAMRIID has federal funding to support their part of the work.



Clinical Study Agreement, dated May
6, 2009, between NanoViricides, Inc. and TheVac, LLC. (“Laboratory”).

From May 1, 2009 through October 31, 2009,
the Laboratory performed pre-clinical studies on various antiviral activities of up to eleven different formulations and assessed
the potential of six nanoviricides manufactured by the Company. The Company paid the Laboratory the amount of $55,000 for the studies.



Master Services Agreement, dated August
31, 2009, by and between Southern Research Institute (“Southern”) and NanoViricides, Inc.



The term of this agreement is three years
from its execution. The Company agrees to supply necessary quantities of its products in order for Southern to complete specific
studies as to the efficacy and safety of the Company’s compounds. The Company shall pay charges associated with each task
order and provide payment in the amount and as indicated therein. It is anticipated the Company will pay approximately $9,530 for
such services. SRI is a general contract research organization (CRO). As per the first Task Order, SRI is evaluating the in vitro
activity of a set of Nanoviricides® against HIV. These nanoviricides were created, produced, formulated and sent to SRI in
a ready to use form by the Company. Under this agreement, SRI will estimate the work load and invoices for additional task orders,
subject to the Company’s agreement on costs.



Technical Testing Agreement, dated December
15, 2007, between The Feinstein Institute for Medical Research (“Feinstein”) and NanoViricides, Inc.



The term of this agreement runs from December
17, 2007 through December 31, 2010. Feinstein performed animal studies testing services on epidemic kerato-conjunctivitis and related
viral diseases of the cornea and conjunctiva. All test results and inventions resulting from the tests remained property of the
Company. Inventions resulting from the testing services would be determined by an independent patent counsel with the Company retaining
a commercial license on such inventions. The Company paid Feinstein an amount equal to $40,090.19 for the costs associated with
the research.



Materials Cooperative Research and Development
Agreement between NanoViricides, Inc. and Centers for Disease Control and Prevention.



The CRADA provided that the CDC would test
the efficacy of the Company’s drug candidates against rabies. The nanoviricides provided by the Company remained its proprietary
information. The CDC retains rights to certain inventions that may be conceived during testing. The Company paid the CDC an amount
equal to approximately $10,000 for the costs associated with the research.



35







Research and Development Agreement with
Professor Ken Rosenthal’s laboratory at the Northeastern Ohio Medical University (NEOMED, formerly called NEOUCOM)



On May 13, 2010, the Company announced
that it had signed a research and development agreement with Professor Ken Rosenthal’s laboratory at the Northeastern Ohio
Medical University (NEOMED). Pursuant to the terms of this Agreement, Professor Rosenthal and NEOMED will evaluate the effectiveness
of nanoviricides drug candidates against Herpes Simplex Viruses, HSV-1 and HSV-2, in both cell culture and animal models. The focus
of this evaluation will be the development of drug candidates against herpes skin infections (oral and genital herpes). Dr. Ken
Rosenthal is a professor of microbiology, immunology and biochemistry at NEOMED. He is a leading researcher in the field of herpes
viruses. His laboratory has developed an improved mouse model of skin-infection with HSV to follow the disease progression. This
model has been shown to provide highly uniform and reproducible results. A uniform disease pattern including onset of lesions and
further progression to zosteriform lesions is observed in all animals in this model. This uniformity makes it an ideal model for
comparative testing of various drug candidates which, the Company believes, can be expected to lead to a broad-spectrum anti-HSV
antiviral treatment capable of attacking both HSV-1 and HSV-2.



Research and Development Agreement with
the University of California, San Francisco (UCSF)



On May 17, 2010, the Company announced
that it had signed a research and development agreement with the University of California, San Francisco (UCSF), for the testing
of its anti-HIV drug candidates. Cheryl Stoddart, PhD, Assistant Professor in the UCSF Division of Experimental Medicine, will
be the Principal Investigator. Dr. Stoddart is a recognized investigator in preclinical studies of anti-HIV compounds using the
standard SCID-hu Thy/Liv humanized mouse model. In particular, she is well known for her work in validating that this mouse model
is capable of accurately predicting clinical antiviral efficacy in humans. The National Institute of Allergy and Infectious Diseases
(NIAID), a division of the National Institutes of Health (NIH), has recognized UCSF as an important site for anti-HIV drug screening
studies. Dr. Stoddart’s in-vivo testing of anti-HIV nanoviricides will complement the Company’s previously announced
in-vitro anti-HIV testing that is currently underway at the Southern Research Institute in Frederick, MD.



Research and Development Agreement with
the University of California, Berkeley (UC Berkeley)



On February 16, 2010, the Company announced
that it had signed a research and development agreement with Dr. Eva Harris’s laboratory at the University of California,
Berkeley (UC Berkeley). Under this agreement, Dr. Harris and coworkers will evaluate the effectiveness of nanoviricides® drug
candidates against various dengue viruses. Cell culture models as well as in vivo animal studies will be employed for testing the
drug candidates. Dr. Eva Harris is a Professor of Infectious Diseases at UC Berkeley. She is a leading researcher in the field
of dengue. Her group has developed a unique animal model for dengue virus infection and disease that effectively emulates the pathology
seen in humans. In particular, the critical problem of dengue virus infection, called “Antibody-Dependent Enhancement”
(ADE), is reproduced in this animal model. When a person who was previously infected with one serotype of dengue virus is later
infected by a different serotype, the antibodies produced by the immune system can lead to increased severity of the second dengue
infection, instead of controlling it. ADE thus can lead to severe dengue disease or dengue hemorrhagic fever (DHF).



Other Agreements and Contracts



The Company continues to receive or obtain
and evaluate various research and drug development collaborations with a number of parties that include government institutions,
academic labs, contract service organizations, pharmaceutical companies, and other potential business collaborators or partners
in the normal course of business. We have also received requests for material for testing under Material Testing Agreements (MTAs)
from certain agencies. However, there can be no assurance that a final agreement may be forthcoming.



Further, the Company has had preliminary
negotiations and discussions with other pharma and non-pharma commercial enterprises regarding commercial projects based on the
Company’s technologies.



Background: Bio-Defense - Emergency
Preparedness NanoViricides Technology May be Well Suited for Bio-Terrorism and Emerging Disease Threat Response



In our early stages of development, we
have designed a building-block based approach of nanoviricides drug development which may have potential use against bio-terrorism,
accidental release of infectious agents, or natural outbreaks. This building block approach is expected to have the potential to
allow us to expeditiously develop a new drug to fight new and emerging threats. The Company has made several presentations to various
agencies within the U. S. Department of Defense regarding this technology.



36







Background: Bio-Defense “Rapid
Threat Response”



One of the long-term goals of the Company
is to develop the ability to assist in the response of governments to viral bio-threats, whether due to bio-terrorism or natural
events. Such a response scenario may in fact be possible because of the building-block nature of the nanoviricides platform technology.
In this scenario, a base nanoviricide would be stockpiled under strategic national and international stockpiling programs, and
a new drug could be developed against a threat even prior to identifying the actual pathogen that is the cause of the public health
crisis event. This capability is seen as extremely valuable because it is anticipated that bioterrorism agents of the future as
well as natural outbreaks may be of novel pathogens and therefore identification and diagnosis of the same may take large amounts
of time, a time period in which an epidemic may threaten to become a pandemic. Such was the case with SARS, and other smaller outbreaks.
Two years ago, a coxsackie virus outbreak in Northern India resulted in several child fatalities during the pathogen identification
time frame itself, despite being caused by a previously known pathogen. Last year, there were many cases of an unidentified infection
in children in Northern India that resulted in several deaths.



Background: Anti-HIV Drugs - Importance
of Reduction in Viremia



In the field of HIV treatment, it is well
established that keeping the viremia to a minimum level has significant clinical benefits. Thus, in one clinical study, only 8%
of HIV infected patients with a viral load of less than 4350 copies of viral mRNA/uL progressed to full- blown AIDS in 5 years.
By contrast, 62% of patients with a viral load of greater than 36,270 copies of mRNA/uL had developed AIDS in the same period (ref
145 from PATH p254). Viremia is significantly controlled with the current state of the art highly active antiretroviral therapies
(HAART) against HIV, to the extent of almost undetectable viral load (i.e. less than 50-75 copies of HIV RNA per ml) in many patients.
However, this is a dynamic condition, in which the rate of creation of new virus particles is balanced by the rate of their destruction,
primarily by the body's innate defenses. In addition, once an escape mutation occurs, the HAART therapy loses its effectiveness
and viral load rises sharply. Similarly, other precipitative events such as a secondary infection can cause progress to the AIDS
stage. The AIDS stage is characterized by rapidly rising HIV viral loads (viremia) and, concomitantly, rapidly declining CD4+ T
cells (an important component of human immune system). Eventually, the patient dies of complications related to the debilitation
of immune response, often by a variety of secondary infections or even neoplasms (cancers) that grow unchecked.



In the very first stage of HIV infection,
i.e. immediately after infection, there is a rapid rise in HIV viremia in the first few weeks, called the Acute HIV Syndrome (or
Disease). If the body's immune system then brings the viremia under control, into a dynamic state, it is called “Asymptomatic
HIV Disease”. This stage lasts for a median 10 years, and a precipitative event, such as usually a secondary infection, leads
to the clinical manifestations of AIDS. During the asymptomatic stage, it is known that the level of the steady state viremia correlates
with the future progression of the disease and the life span of the patient.



While HAART therapy, when successful, leads
to “undetectable” levels of viremia, the virus levels may still be at about 50 copies per ml, or about 1.5 million
circulating virions in the blood and probably many magnitudes more virions inside cells and other tissues. This is still a very
large load of virus. Thus, control of viremia is important even in the asymptomatic stage of “latent” HIV infection,
even with HAART therapy.



Based on our early stage in-vitro and in-vivo
results on our anti-viral influenza nanoviricides, we now have a scientific basis to expect that once we identify and attach a
suitable ligand to develop an anti-HIV nanoviricide, it may well be possible to control viremia in all three stages of the HIV
disease; viz. the early acute HIV infection syndrome, the later clinically latent HIV infection, and the late stage of full-blown
AIDS. This “system” still needs to be extensively tested in the laboratory and in animals before any definitive statements
can be made about its effectiveness.



The Company's Plan of Attacking HIV/AIDS



As previously anticipated, we began pre-clinical
studies of our first generation anti-HIV nanoviricide drug, HIVCide(tm)-I in the later part of our 2007-2008 fiscal year. The early
studies have been extremely successful, and in these preliminary studies we have found at least one lead drug candidate that provided
results superior to the three-drug oral cocktail that is currently in human clinical use as HAART therapy. Additional cell culture
studied against two distinctly different strains of HIV-1 were conducted this year. These studies confirmed the efficacy of the
nanoviricides against both HIV-I strains. We plan on continuing these studies towards the preparation of a Tox Package for filing
an IND in the near future. These planned studies are elaborate, intensive, time-consuming, resource-intensive, and expensive. Our
ability to conduct these studies depends upon adequate financing for the staff as well as for the materials required for the various
experiments. We plan on continuing to rely upon external providers and collaborators for various services as before, wherever possible,
in order to minimize capital expenses. The Company will strategically evaluate any outsourcing of the production of certain key
intellectual property sensitive materials very carefully.



As the studies progress, we may find it
necessary to accelerate the development of a second anti-HIV drug, HIVCide-II, in order to cover the various types, strains, quasi-species
and mutants of the HIV viruses as completely as possible. Our objective is to develop anti- HIV drugs that together respond to
the needs of combating the rapidly changing HIV viruses in the most complete fashion possible. The Company expects that these two
anti-HIV drugs together should encompass the currently known array of HIV types and subtypes in the world. These first nanoviricides
drugs have been designed to engulf the virus particles, and dismantle them.



Together, these two drugs in combination
with one or more of the existing therapies may result in a "functional cure" for HIV infection. To obtain a complete
cure, it will be necessary to eliminate the HIV virus and its genome completely from the body. Eliminating the HIV virus completely
would require eliminating it from the "memory cells" - dormant cells inside which the HIV genome remains hidden, and
springs to life in a later episode. The current two nanoviricides are not designed to accomplish this task. The Company is currently
researching various approaches for impacting the HIV-hiding memory cell population in our march towards a true cure for HIV.



37







Background: Influenza



Seasonal Influenza



Seasonal influenza, commonly known as the
common flu, is a viral infection characterized by symptoms including fever, cough, sore throat, fatigue, headache, and/or chills.
According to the U.S. Centers for Disease Control and Prevention (“CDC”), ( www.cdc.gov ), an estimated 5% to
20% of the American population suffers from influenza annually, more than 200,000 people are hospitalized from flu complications,
and approximately 36,000 people die from the flu in the US. The worldwide death toll is estimated at upwards of 200,000 per year.
Influenza is particularly dangerous to the elderly, young children and people with certain chronic health conditions. Outbreaks
of seasonal flu tend to follow predictable patterns usually occurring in the winter. New vaccines are developed annually based
on known flu strains and are usually available for the annual flu season. There are also antiviral treatments available for the
treatment of people infected with the influenza virus.



Avian Influenza



According to information taken from the
CDC website, avian influenza, or bird flu, is an infection caused by viruses which occur naturally among birds. This form of flu
is very contagious among birds and can lead to serious illness and sometimes death. There are two main forms of disease that infect
domestic poultry, one a low pathogenic form and the other a highly pathogenic form. The latter form can cause disease that affects
multiple internal organs and with a mortality rate between 90-100% in these birds within 2 days.



While there are many different subtypes
of the influenza A viruses, only three subtypes are known to be currently circulating among humans. Avian influenza A viruses are
found chiefly in birds, but there have been confirmed cases of infection in humans, generally as a result of contact with infected
birds. These infections have led to symptoms of normal flu to more severe and life threatening conditions. Influenza A (“H5N1”)
is a subtype of an influenza virus that is highly contagious among birds and can be very deadly to them. Of the avian influenza
viruses that have crossed the species barrier to infect humans, the H5N1 has caused the largest number of detected cases of severe
disease and death in humans. In 2006, it is suspected that the Indonesia strain of H5N1 may have mutated to result in limited spreading
from one person to another, only in close contact circumstances. It is possible that the substantially high case fatality rate
may be keeping the human to human spread in check. But as influenza A viruses constantly change, they could mutate over time to
have the ability to spread among humans.



Pandemic Influenza



Pandemic flu is a global disease outbreak
that occurs when a new influenza virus emerges so that people have had no previous exposure. This situation occurs rarely and only
occurred three times in the 20th century. Minor pandemic outbreaks and minor epidemics occur relatively frequently.



The lesson from the “swine flu”
pandemic outbreak of 2009 is very interesting. The H1N1/2009 outbreak appears to have begun in Mexico and was first identified
in California. Thereafter it ravaged through Mexico and rapidly spread through the cities in USA and across the world, causing
a global pandemic. While the US Government and various other governments made every effort to bring vaccines to contain the disease
into production, the vaccines became available too late in the sequence of events. It has become quite evident that creating a
new vaccine, testing it for efficacy, scaling it up through production, manufacturing, supplying to a supply center, and distributing
it locally are all steps that have significant natural time limitations. In spite of accelerating the FDA approval processes involved
within these steps to the maximum extent possible, vaccines could not reach the population in time.



Nature has once again opened the eyes of
the world to the need for developing novel, effective treatments against influenza viruses that keep changing like a chameleon.
The “swine flu” caused an epidemic in India in September/October, 2009, and was back in full force again in India in
September/October 2010. In addition, the “bird flu” H5N1 epidemic in southeast Asian countries continues to slowly
simmer. The H5N1 virus has recently been found in pigs as well. Pigs serve as a transition species for adaptation of the flu virus
originating in birds to become successful in infecting and spreading in human populations.



Flu Prevention and Treatment



The development of effective therapeutics
has challenged medical researchers due to the seasonal variation in viral strains and the highly infectious nature of influenza.
Patients, therefore, have limited treatment options. Amantadine(TM) and rimantadine(TM) are used for treatment of influenza
A but are ineffective against influenza B. In addition, these drugs cause some adverse side effects, and the virus tends to develop
resistance to these drugs. For the 2005-2006 flu season, the CDC has recommended against the use of amantadine and rimantadine
for the treatment or prophylaxis of influenza in the United States due to signs of resistance to those drugs. Arbidol is in human
use for influenza treatment in Russia and China but it has not yet been widely accepted as being effective. Arbidol side effects
include allergic reactions and sensitization, particularly in children.



38







Vaccines are available against the disease
but have limitations: people require advance vaccination; vaccines are limited by their specificity to particular strains of the
virus; and vaccines offer little protection if the vaccine is inaccurate. In addition, many people decline the required injections
because of fear and/or discomfort, as well as side effects such as allergies. The ability of the virus to change its structure
to avoid the body’s natural defenses is a serious obstacle to developing an effective vaccine against influenza. Different
strains can arise when surface antigens on the virus (the portion of the virus that causes an immune reaction in humans) undergo
minor genetic mutations each year as the virus replicates. Because of this mutability, the immunity acquired in response to infection
by a particular strain of the virus does not provide adequate protection against viruses that subsequently arise. The production
of a new vaccine each year is not only complex and expensive, but also an inefficient method of global disease control. The time
lag between threat potential assignment and vaccine production implies that a novel influenza mutant can develop in the field and
may result in very poor vaccine response.



Inhibiting Influenza Neuraminidase



Research during the past two decades has
seen dramatic advances in understanding the molecular structure and function of the influenza virus. Considerable attention has
been focused on the enzyme neuraminidase, which is located on the surface of the virus particle. Neuraminidase assists in the release
and spread of the flu virus by breaking the chemical strands that hold the new viruses to the cell surface, allowing the replicated
virus to spread and infect other cells. This process progresses until the host’s immune response can produce enough antibodies
to bring the infection under control. Inhibiting the neuraminidase enzyme keeps new viruses attached to the cell surface, thereby
preventing the spread of the virus and the further infection of other cells. The subsequent quantities of virus in the bloodstream
are not enough to cause disease but are sufficient to induce the body to mount an immune response.



Roche, in collaboration with Gilead Sciences,
and GlaxoSmithKline (“GSK”) have currently approved neuraminidase inhibitors on the market. Roche’s neuraminidase
inhibitor, oseltamivir (Tamiflu(TM) is a twice-a-day, orally active neuraminidase inhibitor, while GSK’s neuraminidase
inhibitor, Relenza(TM) is administered by dry powder inhaler twice a day. Both drugs are approved for marketing in the United
States and other countries for treatment of influenza. Roche’s neuraminidase inhibitor is also approved for prophylaxis use
for prevention of influenza. In addition to these companies with neuraminidase inhibitors, there are other companies working to
develop vaccines and other antiviral drugs to be used against various strains of influenza.



BioCryst has developed a neuraminidase
inhibitor, peramivir, as an IV infusion, for the treatment of common influenza as well as H5N1. Peramivir previously failed its
Phase II human trials, and BioCryst had stated that this may be due to the use of short needles in the Phase II study. In spite
of various issues with efficacy and bioavailability, peramivir was approved for influenza treatment in Japan in January, 2010.



Several molecular biology oriented studies
have described that there are significant differences between the neuraminidase of the H5N1 strain and those of the other common
influenza strains that may be responsible for the poor efficacy of neuraminidase inhibitors as a class against H5N1. The New England
Journal of Medicine reported one study which assessed the results of 17 prior studies related to the effectiveness of neuraminidase
inhibitors. de Jong, Memo d., Thanh, Tran T., Khanh, Truong H., et. al. “Oseltamivir Resistance during treatment of Influenza
A (H5N1) Infection, New England Journal of Medicine, Volume 353:2667-2672, December 22, 2005, November 25.



Other Drugs Against Influenza



The broad-spectrum nucleoside analog prodrug
T-705 (Toyoma, Japan) is now in clinical trials. Its mechanism of action is stated as a viral polymerase inhibitor, after conversion
by two cellular enzymes. Phase III clinical trials started in Japan in late 2009. Phase II clinical trials started in the USA in
early 2010.



Fludase(TM) (DAS181) (NexBio) is an
enzyme that removes sialic acids from human cells, thus blocking entry of influenza virus. At present it is in Phase II clinical
trials in the USA.



Some companies are developing viral M2-channel
inhibitors, in the same drug class as amantadines. The objective is to develop M2-channel inhibitors with less potential for development
of drug resistance or escape mutants.



Antibodies Against Influenza



Crucell, NV has recently reported that
they are developing monoclonal antibodies as drugs against H5N1 bird flu. We ourselves were developing AviFluCide-I which uses
a ligand based on certain anti-H5N1 antibodies. However, escape of virus against antibody drugs has been a major challenge, particularly
for the influenzas and for HIV, and many other viral diseases. All of these viruses exhibit a significant antigenic drift, caused
usually by small changes in the structure of their coat protein.



39







FluCide Program



Our broad-spectrum nanoviricide, FluCide-I
is targeted to bind to the virus at its sialic acid binding sites on both hemagglutinin (HA) and neuraminidase (NA) proteins. The
FluCide nanoviricide carries a multiplicity of ligands that are designed to mimic the sialic acid natural ligand. FluCide-I is
thus expected to bind to the virus at multiple sites on the virus surface. This targeted surfactant-like attack is expected to
destroy the virus particle or render it incapable of infecting a human cell. Influenza viruses are well known to be susceptible
to surfactants.



Since both Influenza viral HA and NA continue
to bind to sialic acids in spite of all mutations, FluCide-I is expected to be able to attack the virus even when it mutates, and
thereby suppress escape significantly. However, this needs to be proven in extensive studies.










1 The Writing Committee of the World Health
Organization (WHO) Consultation on Human Influenza A/H5. Avian influenza A (H5N1) infection in humans. N Engl J Med 2005;353:1374-1385.

2   Hien TT, Liem NT, Dung NT,
et al. Avian influenza A (H5N1) in 10 patients in Vietnam. N Engl J Med 2004;350:1179-1188.

3  Chotpitayasunondh T, Ungchusak
K, Hanshaoworakul W, et al. Human disease from influenza A (H5N1), Thailand, 2004. Emerg Infect Dis 2005;11:201-209.

4  Moscona A. Neuraminidase inhibitors
for influenza. N Engl J Med 2005;353:1363-1373.

5  Identification of influenza
isolates by hemagglutination inhibition. In: Department of Communicable Disease Surveillance and Response. WHO manual on animal
influenza diagnosis and surveillance. Geneva: World Health Organization, 2002:28-36. (WHO/CDS/CSR/NCS/2002.5.)

6  de Jong MD, Cam BV, Qui PT,
et al. Fatal avian influenza A (H5N1) in a child presenting with diarrhea followed by coma. N Engl J Med 2005;352:686-691.

7  Boom R, Sol C, Beld M, Weel
J, Goudsmit J, Wertheim-van Dillen P. Improved silica-guanidiniumthiocyanate DNA isolation procedure based on selective binding
of bovine alpha-casein to silica particles. J Clin Microbiol 1999;37:615-619.

8  Boom R, Sol CJ, Salimans MM,
Jansen CL, Wertheim-van Dillen PM, van der Noordaa J. Rapid and simple method for purification of nucleic acids. J Clin Microbiol
1990;28:495-503.

9  Chen H, Smith GJ, Zhang SY, et
al. Avian flu: H5N1 virus outbreak in migratory waterfowl. Nature 2005;436:191-192.

10  Gubareva LV, Kaiser L, Matrosovich
MN, Soo-Hoo Y, Hayden FG. Selection of influenza virus mutants in experimentally infected volunteers treated with oseltamivir.
J Infect Dis 2001;183:523-531.

11  Le QM, Kiso M, Someya K,
et al. Avian flu: isolation of drug-resistant H5N1 virus. Nature 2005;437:1108-1108.

12  Whitley RJ, Hayden FG, Reisinger
KS, et al. Oral oseltamivir treatment of influenza in children. Pediatr Infect Dis J 2001;20:127-133. [Erratum, Pediatr Infect
Dis J 2001;20:421.]

13  Kiso M, Mitamura K, Sakai-Tagawa
Y, et al. Resistant influenza A viruses in children treated with oseltamivir: descriptive study. Lancet 2004;364:759-765.

14  Ward P, Small I, Smith J,
Suter P, Dutkowski R. Oseltamivir (Tamiflu) and its potential for use in the event of an influenza pandemic. J Antimicrob Chemother
2005;55:Suppl 1:i5-i21.

15  Yen HL, Monto AS, Webster
RG, Govorkova EA. Virulence may determine the necessary duration and dosage of oseltamivir treatment for highly pathogenic A/Vietnam/1203/04
influenza virus in mice. J Infect Dis 2005;192:665-672.

16  Maines TR, Lu XH, Erb SM,
et al. Avian influenza (H5N1) viruses isolated from humans in Asia in 2004 exhibit increased virulence in mammals. J Virol 2005;79:11788-11800.



Background: Rabies



The current protocol for treatment after
exposure to Rabies (known as post-exposure prophylaxis or "P.E.P.") is highly successful in preventing the disease if
administered promptly, within fourteen days after infection. The first step is immediately washing the wound with soap and water,
which is very effective at reducing the number of viral particles. In the United States, patients receive one dose of immunoglobulin
and five doses of rabies vaccine over a twenty-eight day period. One-half the dose of immunoglobulin is injected in the region
of the bite, if possible, with the remainder injected intramuscularly away from the bite. The first dose of rabies vaccine is given
as soon as possible after exposure, with additional doses on days three, seven, fourteen, and twenty-eight after the first. Patients
that have previously received pre-exposure vaccination do not receive the immunoglobulin, only the post-exposure vaccinations.



Because of the significant expense of the
rabies treatment, there is limited availability in the rural areas of these underdeveloped countries (The cost in the U.S. is approximately
$1,000 for a course of treatment).



At the request of the Vietnamese Ministry
of Health, we initiated development of an anti-rabies drug. Rabies is a serious public health problem in Vietnam, Thailand, India,
and many other tropical and subtropical countries.



Our first RabiCide drug candidates were
tested at NIHE, Vietnam, in the first quarter of 2007. The Rabies drug, identified as RabiCideTM, salvaged 30% of the animals given
1000X the lethal dose of rabies virus directly into the brain. There can be no assurance that our drug candidate (RabiCide), if
developed, can successfully be manufactured. There are no guarantees that the drug, even if successfully manufactured, can produce
revenue for the Company.



40







The United States Center for Disease Control
has recently declared that the United States is now free of canine rabies, although dogs and humans may still get rabies from other
animals such as bats, raccoons, and skunks ( http://cdc.gov/news/2007/09/canine_rabies.html ). In addition, the World Health
Organization has recently declared that the world will be free of canine rabies by the middle of the next decade. Thus the commercial
potential, for the Company, of a rabies drug is uncertain.



Background: NanoViricides Company Philosophy



NanoViricides, Inc. is a for-profit company.
We have identified several diseases as large commercially important drug development targets. These include HIV, Hepatitis C, Herpes
Simplex Virus, and Influenzas, among others. It is theoretically possible to develop nanoviricide drugs against a large number
of infectious disease agents, particularly viruses. In this regard, there is a potential to develop good nanoviricides against
these infectious agents, including those that are primarily seen in developed countries and well as those primarily seen in developing
and sub-tropical areas.



Significant effort and scientific developments
will be necessary in order to develop nanoviricides against drugs that affect the brain, and the central nervous system (CNS).
This issue, a result of the blood-brain barrier, which does not allow drugs injected in the bloodstream to go into the CNS fluid,
is well known. This is a major barrier for all drug development against CNS diseases. It may not be necessary to overcome this
challenge in order to develop good nanoviricides against Dengue fever, West Nile virus, and other diseases that progress only slowly
to attack the CNS. There may well be a time window for the nanoviricides to attack the virus in the circulation before it has an
opportunity to move into the central nervous system in such diseases. Blood-brain barrier is also compromised in severe disease
states. This may help the nanoviricides to be effective against neurotropic viruses even after they have localized in the CNS.
Extensive studies will be necessary to resolve blood-brain-barrier issues. Alternatively, it is possible to inject drugs directly
into the CNS, although this is a cumbersome and skill-requiring procedure.



It is not possible for any early-stage
pharmaceutical company to expeditiously tackle a large number of disease targets without significant assistance and collaborations,
both financial and technical. The Company has been successful in building the necessary relationships to date with various civilian
and military agencies as well as with various universities and commercial entities regarding various collaborations. The Company
has thereby made and will need to continue to develop additional collaborations in order to minimize capital outlays.



Products



NanoViricides, Inc. currently has no products
for sale.



The following table summarizes NanoViricides
active development projects as of June 30, 2012.

|Table 1. Products in Development
|--------------------------------
|                                
|1                               
|2                               
|3                               
|4                               
|5                               
|6                               
|7                               
|8                               



41







FluCide , is currently in
preclinical studies against all common influenzas as well as avian influenza H5N1. It is a broad-spectrum anti- influenza nanoviricide.
It is based on ligands that we have developed through rational drug design. These ligands are based on a well-known mechanism by
which influenza viruses bind to cells. One mechanism involves the hemagglutinin coat protein of influenza virus binding to sialic
acids on cell surfaces. Our broad-spectrum ligand used in FluCide is based on the sialic acid expressed by cells. Therefore, it
is expected to work well against all of the influenza viruses. Since all influenza viruses, no matter what type (A, B, C), which
subtype (e.g. HxNy of Influenza A), or clades, or strains, must bind to one of two varieties of sialic acid, we have designed the
ligand such that all of the influenza viruses must bind to our ligand. If an influenza virus escapes FluCide, this mutant virus
would be unable to bind to both types of sialic acids, and would be thus unable to infect most animal species, including birds
and mammals.



HIVCide , is our first announced
drug project against HIV-I. Our first HIV drug to be developed is a targeted nanoviricide against HIV and is engineered with specific
recognition ligands that allow multiple point binding to inactivate HIV virus in the bloodstream.



Nanoviricide Eye Drops - We undertook
a new project last year and have already designed a ligand, made a nanoviricide drug, and completed successful animal studies that
indicate significant preliminary efficacy and safety of a drug candidate against the severe pink eye disease caused by adenoviruses
called epidemic kerato-conjunctivitis. This year, we expanded the indication to include HSV, another cause of viral eye diseases.
We designed new broad-spectrum ligands expected to be active against all HSV types and strains, as well as retaining the previously
observed activity features against adenoviruses and created new nanoviricide drug candidates. We have already tested these against
HSV in cell cultures. Animal model studies against Herpes Keratitis are expected to be conducted in the next six months.



HerpeCide - We undertook a new project
this year and have already designed a ligand, made a nanoviricide drug, and tested in cell cultures successfully. HerpeCide is
being developed as skin cream or gel formulation for the treatment of oral and genital herpes lesions.



DengueCide - We undertook a new
project this year and have already designed a ligand, made a nanoviricide drug, and tested in cell cultures as well as in vivo
successfully. We intend to continue optimizing the drug candidates.



RabiCide , a nanoviricide against
Rabies finished its first set of animal studies in the first quarter of 2007 in Vietnam. The candidate ligands for this nanoviricide
were designed by the Company using publicly available information regarding the interaction of the rabies virus with cells. The
Company has slowed down its development programs in NTDs and BioDefense areas during the economic crisis of the last year in order
to conserve resources.



Nanoviricide against Ebola/Marburg
- Our collaboration with USAMRIID for the development of a nanoviricide against Ebola/Marburg has resulted in significantly active
drug candidates. We plan on further improving these drug candidates. We continue our efforts at obtaining federal funding for this
project.



HCV - A Hepatitis C nanoviricide
is planned for research and development to begin after we have an optimized drug candidate for Dengue Fever. The Company has not
yet sourced the materials to target this disease. The cell culture models available for HCV are very limited in nature. In particular,
their application to study relative efficacies of virus neutralizing drugs is not well established. The in vivo studies against
HCV require specialized animal models. A highly specialized mouse model with a human liver xenograft has become available for HCV
studies. However, the studies take a very long time and also are very expensive. The Company has only begun the early stages of
a plan to develop nanoviricides against Hepatitis C. This project continues to be of major commercial interest. However, we plan
to tackle it when appropriate levels of funding resources are available to the Company.



Drug Formulations



We have successfully formulated nanoviricides
as eye drops, as IV injections and as skin creams and gels. We choose the formulation and route of administration that is expected
to provide the best outcome for a particular viral disease, based on disease pathology. It is possible to administer nanoviricides
drugs using other approaches as well.



Recently, we have been successful in developing
nanoviricides against influenza that demonstrated very high effectiveness when given orally. This may be the very first time orally
active targeted nanomaterial-based drug candidates have been developed and shown to have efficacy in animal models.



Development Stage of Products



Our Influenza program is the most advanced
and we anticipate filing a pre- IND application with the FDA soon. We will need cGMP drug product for filing an IND and conducting
clinical trials in the future. [cGMP = current Good Manufacturing Practices]. We are aggressively working on developing cGMP capability
for our nanoviricides drug product lines.



42







All of the other products are in various
stages of pre-clinical development. The Company believes that the anti-influenza drugs will advance into second stage of preclinical
studies, known as “Tox Package” studies, as soon as appropriate facilities and finances are available. The Company
believes that our anti-influenza drug candidates, anti-HIV drug candidates, as well as anti-viral eye drops drug candidates have
all produced substantial positive results and should be developed further towards the goal of filing appropriate IND applications.
All of our developments are subject to availability of appropriate levels of financing.



Drug Development Plan



The Company intends to perform the regulatory
filings and own all the regulatory licenses for the drugs it is currently developing. The Company will develop these drugs in part
via subcontracts to TheraCour Pharma, Inc. (“TheraCour”), the exclusive source for these nanomaterials. With sourcing
of materials from TheraCour, the Company prefers to manufacture these drugs in our own facility. However, the Company may manufacture
these drugs under subcontract arrangements with external manufacturers that carry the appropriate regulatory licenses and have
appropriate capabilities. The Company intends to distribute these drugs via subcontracts with distributor companies or in partnership
arrangements. The Company plans to market these drugs either on its own or in conjunction with marketing partners. The Company
also plans to actively pursue co-development, as well as other licensing agreements with other pharmaceutical companies. Such agreements
may entail up-front payments, milestone payments, royalties, and/or cost sharing, profit sharing and many other instruments that
may bring early revenues to the Company. Such licensing and/or co-development agreements may shape the manufacturing and development
options that the Company may pursue. The Company has received significant interest from certain pharmaceutical companies for potential
licensing or co-development of some of our drug candidates. However, none of these distributor or co-development agreements is
in place at the current time.



Manufacturing



Manufacturing of Research Materials



Nanomaterials that form the basis of our
nanoviricide drugs are produced for research by TheraCour Pharma, Inc. at their research scale production facility in West Haven,
Connecticut.



Manufacturing of Drugs



Subsequent to our fiscal year ended June
30, 2012, we have initiated lease discussions with Inno-Haven, LLC, a special purpose company formed for the purpose of real estate
acquisition and improvements, which has acquired a light industrial building in Shelton, CT. Inno-Haven is controlled by Dr. Anil
R. Diwan. The financing for this acquisition was raised by Dr. Diwan through his personal funds, borrowings, other private investors,
and partially through the sale of NanoViricides stock that he has acquired as a founder of NanoViricides, Inc. in accordance with
a 10b5-1 trading plan. Inno-Haven is expected to perform improvements to the facility to enable modern laboratory space and cGMP
facilities for the manufacture of the Nanoviricides’ drug candidates. No lease agreement has been signed to date.



The Company intends to manufacture FluCide,
HIVCide, Nanoviricide Eye Drops, HerpeCide, DengueCide, RabiCide as well as other drugs for pre-clinical animal studies and human
clinical studies, in facilities owned or leased by the Company. In the event that we cannot secure funding that allows us to establish
the necessary facilities to manufacture such drugs, we plan to subcontract with third party facilities that have the appropriate
capabilities and regulatory licenses to manufacture our drugs and materials on a commercial scale.



Certain FDA regulations enable the use
of research products produced in a non-GMP-certified facility for certain human studies, provided the materials and production
facility meet certain standards. The Company may be able to take advantage of these regulatory amendments in order to advance our
drugs into IND stage and first-in-human studies more rapidly. Several countries in the world allow “c-GMP-like” materials
to be used for early human clinical trials. We believe that Australia is one of them. A “c-GMP-like” material can be
loosely defined as material that is produced in a c-GMP compliant facility that has not yet undergone FDA registration as a cGMP
drug manufacturing facility.



We have no commercial-scale manufacturing
facilities at present. For our future products, we will need to develop additional manufacturing capabilities and establish additional
third party suppliers to manufacture sufficient quantities of our product candidates to undertake clinical trials and to manufacture
sufficient quantities of any products that are approved for commercial sale. If we are unable to develop manufacturing capabilities
internally or contract for large scale manufacturing with third parties on acceptable terms for our future antiviral products,
our ability to conduct large-scale clinical trials and meet customer demand for commercial products would be adversely affected.



We believe that the technology we use to
manufacture our products and compounds is proprietary. For our products, we may have to disclose all necessary aspects of this
technology to contract manufacturers to enable them to manufacture the products and compounds for us. We plan to have discussions
with manufacturers under non-disclosure and non-compete agreements that are intended to restrict them from using or revealing this
technology, but we cannot be certain that these manufacturers will comply with these restrictions. In addition, these manufacturers
could develop their own technology related to the work they perform for us that we may need to manufacture our products or compounds.
We could be required to enter into an agreement with that manufacturer if we wanted to use that technology ourselves or allow another
manufacturer to use that technology. The manufacturer could refuse to allow us to use their technology or could demand terms to
use their technology that are not acceptable.



43







We believe that we are in compliance with
all material environmental regulations related to the manufacture of our products.



Patents, Trademarks, and Proprietary
Rights



The Company has an exclusive license in
perpetuity for technologies developed (with materials referenced in Table 1 below) by TheraCour for the following virus types:
HIV, Hepatitis C Virus, Herpes, Asian (bird) flu, Influenza, and rabies. The Company has entered into an Additional License Agreement
with TheraCour granting the Company the exclusive licenses in perpetuity for technologies developed by TheraCour for the additional
virus types for Dengue viruses, Japanese Encephalitis virus, West Nile Virus, Viruses causing viral Conjunctivitis (a disease of
the eye) and Ocular Herpes, and Ebola/Marburg viruses.



In consideration for obtaining these exclusive
licenses, we agreed: (1) that TheraCour can charge its costs (direct and indirect) plus a maximum of 30% of direct costs as a Development
Fee payable in periodic installments as billed; (2) we will pay $25,000 per month for usage of lab supplies and chemicals from
existing stock held by TheraCour; (3) we will pay $2,000 or actual costs, whichever is higher for other general and administrative
expenses incurred by TheraCour on our behalf (4) to make royalty payments of fifteen percent (15%) of net sales of the licensed
drugs to TheraCour Pharma, Inc.; (5) that TheraCour retain the exclusive right to develop and synthesize nanomicelle(s), a small
(approximately twenty nanometers in size) long chain polymer based chemical structure, as component elements of the Licensed Products.
TheraCour agreed that it will develop and synthesize such licensed nanomicelles exclusively for NanoViricides, and unless such
license is terminated, will not develop or synthesize such licensed nanomicelles for others; and (6) TheraCour may request and
NanoViricides, Inc. will pay an advance payment equal to twice the amount of the previous months invoice to be applied as a prepayment
towards expenses. TheraCour Pharma, Inc. may terminate the license upon a material breach by us as specified in the agreement.
However, we may avoid such termination if within 90 days of receipt of such termination notice we cure the breach.



Development costs charged by and paid to
TheraCour Pharma, Inc. were $$2,965,030 and $1,250,901 and $1,086,927 for the years ended June 30, 2012 and 2010, respectively
and $6,617,004 since inception through June 30, 2012. No royalties are due or have been paid from inception through June 30, 2012.



TheraCour Pharma, Inc. owns 33,360,000
shares of the Company’s 155,612,193 outstanding shares of common stock and 7,000,000 shares of our Series A Convertible Preferred
Stock as of June 30, 2012. Anil Diwan, the Company’s President and Chairman of the Board and Director, owns approximately
seventy percent (70%) of the outstanding capital of TheraCour Pharma., Inc.



Patents and other proprietary rights are
essential for our operations. If we have a properly designed and enforceable patent, it can be more difficult for our competitors
to use our technology to create competitive products and more difficult for our competitors to obtain a patent that prevents us
from using technology we create. As part of our business strategy, we actively seek patent protection both in the United States
and internationally and intend to file additional patent applications, when appropriate, to cover improvements in our compounds,
products and technology. We also rely on trade secrets, internal know-how, technological innovations and agreements with third
parties to develop, maintain and protect our competitive position. Our ability to be competitive will depend on the success of
this strategy.



The Company believes that the drugs by
themselves, FluCide, HivCide, Nanoviricide Eye Drops, HerpeCide, RabiCide, and others, may be eligible for patent protection. The
Company plans on filing patent applications for protecting these drugs when we have definitive results from either in-vitro or
in-vivo studies that can be replicated by others.



The Company has licensed key patents, patent
applications and rights to proprietary and patent-pending technologies related to our compounds, products and technologies (see
Table 2), but we cannot be certain that issued patents will be enforceable or provide adequate protection or that pending patent
applications will result in issued patents.



Table 2: Intellectual Property, Patents,
and Pending Patents Licensed by the Company



|Table 2: Intellectual Property, Patents and Pending Patents Licensed by The Company
|-----------------------------------------------------------------------------------
|                                                                                   
|1                                                                                  
|2                                                                                  
|3                                                                                  



44







A provisional U.S. patent application filed
in July 2009 was abandoned, in favor of a broader international (PCT) patent application covering the contents of that application
and also more recent inventions in the same technology stream. The priority date afforded by the provisional application would
have been available only in the U.S., and therefore a single, uniform, international application covering the technology invented
to date will be pursued instead.



The two PCT applications listed above are
now in national or regional application stages.



The counterpart of PCT/US06/01820 has issued
as a Singapore National Patent Publication, a South African patent, and also as an OAPI regional patent covering Benin, Burkina
Faso, Cameroon, Central African Republic, Chad, Republic of Congo, Cote d'Ivoire, Equatorial Guinea, Gabon, Guinea, Guinea Bissau,
Mali, Mauritania, Niger, Senegal, and Togo. It has also issued as a granted patent in New Zealand China, Mexico, Japan, and the
USA. The US expiry date is estimated at October, 2028. Other expiry dates range nominally from 2026 to 2028..



The counterpart of PCT/US2007/001607 has
issued as a granted patent in New Zealand, OAPI, Pakistan, , Australia, South Africa, and Mexico to date. The nominal expiry dates
are expected to range from 2027 to 2029.



Prosecution in other countries is ongoing.



Of the patents and technologies licensed,
the Company believes that the Company will not be using the intellectual property, compositions of matter, or other aspects described
and secured under the US Patent No. US 6,521,736. The Company believes that this patent describes an inferior technology compared
to the technology in the later patent filings of Dr. Diwan. This patent, the Company believes, discloses prototype materials that
served to establish the proof of principles developed by Dr. Anil Diwan, the Company’s President and co- founder, whether
such materials were possible to create and whether such materials would indeed be capable of encapsulation of pharmaceutically
relevant compounds. The Company believes that the new and novel compositions disclosed in the new patent applications, No. PCT/US06/01820,
and No. PCT/US2007/001607, and additional proprietary intellectual property provide the necessary features that enable the development
of nanoviricides. The Company believes that no other published literature materials or existing patents are capable of providing
all of the necessary features for this development, to the best of our knowledge. However, the Company has no knowledge of the
extensive active internal developments at a number of companies in the targeted therapeutics area.



We may obtain patents for our compounds
many years before we obtain marketing approval for them. Because patents have a limited life, which may begin to run prior to the
commercial sale of the related product, the commercial value of the patent may be limited. However, we may be able to apply for
patent term extensions, based on delays experienced in marketing products due to regulatory requirements. There is no assurance
we would be able to obtain such extensions. The Company controls the research and work TheraCour performs on its behalf and no
costs may be incurred without the prior authorization or approval of the Company.



Patents relating to pharmaceutical, biopharmaceutical
and biotechnology products, compounds and processes such as those that cover our existing compounds, products and processes and
those that we will likely file in the future, do not always provide complete or adequate protection. Future litigation or reexamination
proceedings regarding the enforcement or validity of our licensor, TheraCour Pharma Inc.’s existing patents or any future
patents, could invalidate TheraCour’s patents or substantially reduce their protection. In addition, the pending patent applications
and patent applications filed by TheraCour, may not result in the issuance of any patents or may result in patents that do not
provide adequate protection. As a result, we may not be able to prevent third parties from developing the same compounds and products
that we have developed or are developing. In addition, certain countries do not permit enforcement of our patents, and manufacturers
are able to sell generic versions of our products in those countries.



We also rely on unpatented trade secrets
and improvements, unpatented internal know-how and technological innovation. In particular, a great deal of our material manufacturing
expertise, which is a key component of our core material technology, is not covered by patents but is instead protected as a trade
secret. We protect these rights mainly through confidentiality agreements with our corporate partners, employees, consultants and
vendors. These agreements provide that all confidential information developed or made known to an individual during the course
of their relationship with us will be kept confidential and will not be used or disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all inventions made by the individual while employed by us
will be our exclusive property. We cannot be certain that these parties will comply with these confidentiality agreements, that
we have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered
by our competitors.



45







Trademarks



On April 20, 2010, the United States Patent
and Trademark Office granted trademark registration number 3,777,001 to the Company for the standard character mark “nanoviricides”
(the “Mark”) for International Class 5, pharmaceutical preparation for the treatment of viral diseases. The Mark was
registered on the Principal Register and is protected in all its letter forms, including corresponding plural and singular forms,
various forms of capitalization, and fonts and designs.



Competition



Our products in development target a number
of diseases and conditions that include several different kinds of viral infections. There are many commercially available products
for these diseases and a large number of companies and institutions are spending considerable amounts of money and other resources
to develop additional products to treat these diseases. Most of these companies have substantially greater financial and other
resources, larger research and development staffs, and extensive marketing and manufacturing organizations. If we are able to successfully
develop products, they would compete with existing products based primarily on:



| | ● | efficacy;
| | - | ---------

| | ● | safety;
| | - | -------

| | ● | tolerability;
| | - | -------------

| | ● | acceptance by doctors;
| | - | ----------------------

| | ● | patient compliance;
| | - | -------------------

| | ● | patent protection;
| | - | ------------------

| | ● | ease of use;
| | - | ------------

| | ● | price;
| | - | ------

| | ● | insurance and other reimbursement coverage;
| | - | -------------------------------------------

| | ● | distribution;
| | - | -------------

| | ● | marketing; and
| | - | --------------

| | ● | adaptability to various modes of dosing.
| | - | ----------------------------------------



The current approved drugs for influenza
include the neuraminidase inhibitors Tamiflu and Relenza, anti-influenza drugs that are sold by Roche and Glaxo SmithKline (GSK),
respectively. In addition, M2 channel inhibitors, generic drugs include amantadine and rimantadine, both oral tablets that only
inhibit the replication of the influenza A virus. There is significant viral resistance to the approved M2 channel inhibitors especially
in the US. BioCryst Pharmaceuticals, Inc. has recently developed IV infusion formulations of peramivir, an influenza neuraminidase
inhibitor, for the treatment of influenza. Several companies are developing anti-influenza drugs at present. Small chemical classes
include neuraminidase inhibitors, M2-channel inhibitors, RDRP inhibitors, among others. There are also monoclonal, polyclonal,
and mixed antibodies, as well as enzymes as drugs in development.



There are a growing number of anti-HIV
drugs being sold or in advanced stages of clinical development. Companies with HCV and HIV products include Gilead, Bristol-Myers
Squibb Company (BMS), Roche, Boehringer Ingelheim, Merck & Co., Inc. (Merck), in addition to several other pharmaceutical and
biotechnology firms.



There are currently no approved drugs for
the treatment of viral diseases of the external eye. A drug in development, called CTC-96, was shown to have little clinical benefit
in published animal studies. Another drug in development, an Aganocide(tm) compound from NovaBay Pharma in collaboration with Alcon
is in Phase II clinical studies. Alcon (a division of Novartis) discontinued further development of this drug following mixed results
in a Phase II clinical trial. NovaBay has regained the rights to it and has continued further development. Aganocides, by virtue
of their chemical structure, are generally not expected to be useful for any applications other than topical.



There are several drugs in the market that
effectively control HSV cold sores and genital herpes lesions in most patients. These include the nucleoside analogues idoxuridine,
vidarabine, acyclovir, and its derivatives. However, their efficacy is limited or toxicities are high.



Our HCV drugs are at the earliest stage
of development. There are a growing number of anti-HCV drugs being sold or are in advanced stages of clinical development. Companies
with HCV products or drugs in development include Valeant, Schering, Pharmassett, Vertex, Intermune, and Achillion, among others.



46







Currently there are two accepted methods
of rabies prophylaxis: rabies vaccines and rabies immune globulin, manufactured by many foreign and multinational manufacturers
including Aventis Pasteur and Chiron (acquired by Novartis). These accepted methods will be the standard against which our new
anti-rabies drug in development will be judged.



In order to compete successfully, we must
develop proprietary positions in patented drugs for therapeutic markets. Our products, even if successfully tested and developed,
may not be adopted by physicians over other products and may not offer economically feasible alternatives to other therapies.



Government Regulation



Our operations and activities are subject
to extensive regulation by numerous government authorities in the United States and other countries. In the United States, drugs
are subject to rigorous regulation by the United States Food and Drug Administration (“FDA”). The Federal Food, Drug
and Cosmetic Act and other federal and state statutes and regulations govern the testing, manufacture, safety, effectiveness, labeling,
storage, record keeping, approval, advertising and promotion of our products. As a result of these regulations, product development
and the product approval process is very expensive and time consuming.



The FDA must approve a drug before it can
be sold in the United States. As of the date of this filing, the FDA has approved other nano- particulate drugs including Emend®
by Merck and Rapamune® by Wyeth, as well as others. The general process for FDA approval is as follows:



Preclinical Testing



Before we can test a drug candidate in
humans, we must study the drug in laboratory experiments and in animals to generate data to support the drug’s potential
safety and benefits. We submit this data to the FDA in an investigational new drug application IND seeking their approval to test
the compound in humans.



Clinical Trials



If the FDA accepts the investigational
new drug application, we study the drug in human clinical trials to determine if the drug is safe and effective. These clinical
trials involve three separate phases that often overlap, can take many years to compile and are very expensive. These three phases,
which are themselves subject to considerable regulation, are as follows:



| | · | Phase I. The drug is given to a small number of healthy human subjects or patients to test for safety, dose tolerance, pharmacokinetics, metabolism, distribution and excretion.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Phase II. The drug is given to a limited patient population to determine the effect of the drug in treating the disease, the best dose of the drug, and the possible side effects and safety risks of the drug.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Phase III. If a compound appears to be effective and safe in Phase II clinical trials, Phase III clinical trials are commenced to confirm those results. Phase III clinical trials are long-term, involve a significantly larger population, are conducted at numerous sites in different geographic regions and are carefully designed to provide reliable and conclusive data regarding the safety and benefits of a drug. It is not uncommon for a drug that appears promising in Phase II clinical trials to fail in the more rigorous and reliable Phase III clinical trials.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



FDA Approval Process



If we believe that the data from the Phase
3 clinical trials show an adequate level of safety and effectiveness, we will file a new drug application (NDA) with the FDA seeking
approval to sell the drug for a particular use. The FDA will review the NDA and often will hold a public hearing where an independent
advisory committee of expert advisors asks additional questions regarding the drug. This committee makes a recommendation to the
FDA that is not binding on the FDA but is generally followed. If the FDA agrees that the compound has met the required level of
safety and effectiveness for a particular use, it will allow us to sell the drug in the United States for that use. It is not unusual,
however, for the FDA to reject an application because it believes that the drug is not safe enough or effective enough or because
it does not believe that the data submitted is reliable or conclusive.



At any point in this process, the development
of a drug could be stopped for a number of reasons including safety concerns and lack of treatment benefit. We cannot be certain
that any clinical trials that we are currently conducting or any that we conduct in the future, will be completed successfully
or within any specified time period. We may choose, or the FDA may require us, to delay or suspend our clinical trials at any time
if it appears that the patients are being exposed to an unacceptable health risk or if the drug candidate does not appear to have
sufficient treatment benefit.



47







The FDA may also require us to complete
additional testing, provide additional data or information, improve our manufacturing processes, procedures or facilities or may
require extensive post-marketing testing and surveillance to monitor the safety or benefits of our product candidates if it determines
that our new drug application does not contain adequate evidence of the safety and benefits of the drug. In addition, even if the
FDA approves a drug, it could limit the uses of the drug. The FDA can withdraw approvals if it does not believe that we are complying
with regulatory standards or if problems are uncovered or occur after approval.



In addition to obtaining FDA approval for
each drug, we obtain FDA approval of the manufacturing facilities for any drug we sell, including those of companies who manufacture
our drugs for us as well as our own and these facilities are subject to periodic inspections by the FDA. The FDA must also approve
foreign establishments that manufacture products to be sold in the United States and these facilities are subject to periodic regulatory
inspection.



We are also subject to other federal, state
and local regulations regarding workplace safety and protection of the environment. We use hazardous materials, chemicals, viruses
and various radioactive compounds in our research and development activities and cannot eliminate the risk of accidental contamination
or injury from these materials. Any misuse or accidents involving these materials could lead to significant litigation, fines and
penalties.



Drugs are also subject to extensive regulation
outside of the United States. In the European Union, there is a centralized approval procedure that authorizes marketing of a product
in all countries in the European Union (which includes most major countries in Europe). If this procedure is not used, under a
decentralized system, an approval in one country of the European Union can be used to obtain approval in another country of the
European Union under a simplified application process at present. After approval under the centralized procedure, pricing and reimbursement
approvals are also required in most countries. These procedures are undergoing revision and modification at present. We have never
received approval for a product in the European Union to date.



Employees and Service Providers



The Company had six full time employees.
In addition, most of the business activities of the Company including accounting and legal work and business development are provided
by subcontractors and consultants. Further, the Company has subcontracted nanomaterials research and development (“R&D”)
to TheraCour. The Company has subcontracted some of its animal studies to KARD Scientific, Inc. and to government, academic, and
private institutions. Some of the Company's R&D work was performed by agencies in Vietnam. In the future, the Company anticipates
having additional service providers. We believe that we have good relations with our employees and subcontractors.



Reports to Security Holders



As a result of its filing of Form 10-SB
and listing on the FINRA OTC Bulletin Board, the Company has become subject to the reporting obligations of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). These obligations include filing an annual report under cover of Form
10-K, with audited financial statements, unaudited quarterly reports on Form 10-Q and the requisite proxy statements with regard
to annual shareholder meetings. The public may read and copy any materials the Company files with the Securities and Exchange Commission
(the “Commission”) at the Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0030. The Commission
maintains an Internet site ( http://www.sec.gov ) that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. Information about the Company is also available on its Web site
at www.nanoviricides.com . Information included on the Web site is not part of this Form 10-K.



Website



Our website address is www.nanoviricides.com
..



We intend to make available through our
website, all of our filings with the Commission and all amendments to these reports as soon as reasonably practicable after filing,
by providing a hyperlink to the EDGAR website containing our reports.



Our Information



Our principal executive offices are currently
located at 135 Wood St. West Haven, Connecticut 06516 and our telephone number is (203) 937-6137. We can be contacted by email
at info@nanoviricides.com .



ITEM 1A. RISK FACTORS



Our business, financial condition, operating
results and prospects are subject to the following risks. Additional risks and uncertainties not presently foreseeable to us may
also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating
results could be materially adversely affected. In such case, the trading price of our common stock could decline, and our stockholders
may lose all or part of their investment in the shares of our common stock.



48







This Form 10-K contains forward-looking
statements that involve risks and uncertainties. These statements can be identified by the use of forward-looking terminology such
as “believes,” “expects,” “intends,” “plans,” “may,” “will,”
“should,” or “anticipation” or the negative thereof or other variations thereon or comparable terminology.
Actual results could differ materially from those discussed in the forward- looking statements as a result of certain factors,
including those set forth below and elsewhere in this Form 10-K.



Risks Specific to Our Business



Our company is a development stage
company that has no products approved for commercial sale, never generated any revenues and may never achieve revenues or profitability.



Our company is a development stage company
that has no products approved for commercial sale, never generated any revenues and may never achieve revenues or profitability.
We are a development stage biopharmaceutical company. Currently, we have no products approved for commercial sale and, to date,
we have not generated any revenues. Our ability to generate revenue depends heavily on:



|• | demonstration and proof of principle in pre-clinical trials that a nanoviricide is safe and effective;                                                           
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | successful development of our first product candidates FluCide, Nanoviricide Eye Drops, HIVCide, HerpeCide or another one of the drug candidates in our pipeline;
|• | our ability to seek and obtain regulatory approvals, including with respect to the indications we are seeking;                                                   



|• | the successful commercialization of our product candidates; and
|- | ---------------------------------------------------------------
|• | market acceptance of our products.                             



All of our existing product candidates
are in early stages of development. It will be several years, if ever, until we have a commercial drug product available for resale.
If we do not successfully develop and commercialize these products, we will not achieve revenues or profitability in the foreseeable
future, if at all. If we are unable to generate revenues or achieve profitability, we may be unable to continue our operations.



We are a development stage company with
a limited operating history, making it difficult for you to evaluate our business and your investment. We are in the development
stage and our operations and the development of our proposed products are subject to all of the risks inherent in the establishment
of a new business enterprise, including but not limited to:



|• | the absence of an operating history;                                                                                        
|- | ----------------------------------------------------------------------------------------------------------------------------
|• | the lack of commercialized products;                                                                                        
|• | insufficient capital;                                                                                                       
|• | expected substantial and continual losses for the foreseeable future;                                                       
|• | limited experience in dealing with regulatory issues; the lack of manufacturing experience and limited marketing experience;
|• | an expected reliance on third parties for the development and commercialization of our proposed products;                   
|• | a competitive environment characterized by numerous, well-established and well capitalized competitors; and                 
|• | reliance on key personnel.                                                                                                  



Because we are subject to these risks,
you may have a difficult time evaluating our business and your investment in our company.



Our ability to become profitable depends
primarily on the following factors:



|• | our ability to develop drugs, obtain approval for such drugs, and if approved, to successfully commercialize our nanoviricide drug(s);                                                   
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | our R&D efforts, including the timing and cost of clinical trials; and                                                                                                                   
|• | our ability to enter into favorable alliances with third-parties who can provide substantial capabilities in clinical development, regulatory affairs, sales, marketing and distribution.



Even if we successfully develop and
market our drug candidates, we may not generate sufficient or sustainable revenue to achieve or sustain profitability.



We have incurred significant operating
losses and may not ever be profitable. As of June 30, 2012 we have a cash and cash equivalent balance of $14,274,985. Also, the
Company has incurred significant operating losses since its inception, resulting in an accumulated deficit of $29,424,116 at June
30, 2012. Such losses are expected to continue for the foreseeable future. As a result of recent financing, the Company estimates
that it has sufficient cash to support current operations through the next six quarters, i.e. through June , 2014.



49







We will need to raise substantial
additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable
terms.



We currently do not have sufficient resources
to complete the development and commercialization of any of our proposed products. As of June 30, 2012 we have a cash and cash
equivalent balance of $14,274,985 which combined with the follow on offering of $2,500,000 to be obtained through the sale of the
Company’s Series C Convertible Preferred Stock, after the close of the Company’s year-end, will be sufficient to fund
our operations for the next twenty four months at the current rate of expenditures. We expect to incur additional costs of approximately
$10~15 million dollars in the upcoming twenty-four months to construct or obtain facilities to support an investigational new drug
application filing with the FDA in accordance with our business plans.



In the event that we cannot obtain acceptable
financing, or that we are unable to secure additional financing on acceptable terms, we would be unable to complete development
of our various drug candidates. This would necessitate implementing staff reductions and operational adjustments that would include
reductions in the following business areas:

|• | research and development programs;                                                                               
|- | -----------------------------------------------------------------------------------------------------------------
|• | preclinical studies and clinical trials; material characterization studies, regulatory processes;                
|• | establishment of our own laboratory or a search for third party marketing partners to market our products for us.



The amount of capital we may need will
depend on many factors, including the:



|• | progress, timing and scope of our research and development programs;                                             
|- | -----------------------------------------------------------------------------------------------------------------
|• | progress, timing and scope of our preclinical studies and clinical trials;                                       
|• | time and cost necessary to obtain regulatory approvals;                                                          
|• | time and cost necessary to establish our own marketing capabilities or to seek marketing partners;               
|• | time and cost necessary to respond to technological and market developments;                                     
|• | changes made or new developments in our existing collaborative, licensing and other commercial relationships; and
|• | new collaborative, licensing and other commercial relationships that we may establish.                           



Our fixed expenses, such as rent, license
payments and other contractual commitments, may increase in the future, as we may:

|• | enter into leases for new facilities and capital equipment;      
|- | -----------------------------------------------------------------
|• | enter into additional licenses and collaborative agreements; and 
|• | incur additional expenses associated with being a public company.



We have limited experience in drug
development and may not be able to successfully develop any drugs.



Until the formation of NanoViricide, Inc.
(the Company's predecessor prior to the exchange) our management and key personnel had no experience in pharmaceutical drug development
and, consequently, may not be able to successfully develop any drugs. Our ability to achieve revenues and profitability in our
business will depend, among other things, on our ability to:



|• | develop products internally or obtain rights to them from others on favorable terms;      
|- | ------------------------------------------------------------------------------------------
|• | complete laboratory testing and human studies;                                            
|• | obtain and maintain necessary intellectual property rights to our products;               
|• | successfully complete regulatory review to obtain requisite governmental agency approvals;
|• | enter into arrangements with third parties to manufacture our products on our behalf; and 
|• | enter into arrangements with third parties to provide sales and marketing functions.      



Development of pharmaceutical products
is a time-consuming process, subject to a number of factors, many of which are outside of our control. Consequently, we can provide
no assurance of the successful and timely development of new drugs.



Our drug candidates are in their developmental
stage. Further development and extensive testing will be required to determine their technical feasibility and commercial viability.
Our success will depend on our ability to achieve scientific and technological advances and to translate such advances into reliable,
commercially competitive drugs on a timely basis. Drugs that we may develop are not likely to be commercially available for a few
years. The proposed development schedules for our drug candidates may be affected by a variety of factors, including technological
difficulties, proprietary technology of others, and changes in government regulation, many of which will not be within our control.
Any delay in the development, introduction or marketing of our drug candidates could result either in such drugs being marketed
at a time when their cost and performance characteristics would not be competitive in the marketplace or in the shortening of their
commercial lives. In light of the long-term nature of our projects, the unproven technology involved and the other factors described
elsewhere in “Risk Factors”, we may not be able to complete successfully the development or marketing of any drugs.



We may fail to successfully develop and
commercialize our drug candidates because they:



|• | are found to be unsafe or ineffective in clinical trials;                             
|- | --------------------------------------------------------------------------------------
|• | do not receive necessary approval from the FDA or foreign regulatory agencies;        
|• | fail to conform to a changing standard of care for the diseases they seek to treat; or
|• | are less effective or more expensive than current or alternative treatment methods.   



50







Drug development failure can occur at any
stage of clinical trials and as a result of many factors and there can be no assurance that we or our collaborators will reach
our anticipated clinical targets. Even if we or our collaborators complete our clinical trials, we do not know what the long-term
effects of exposure to our drug candidates will be. Furthermore, our drug candidates may be used in combination with other treatments
and there can be no assurance that such use will not lead to unique safety issues. Failure to complete clinical trials or to prove
that our drug candidates are safe and effective would have a material adverse effect on our ability to generate revenue and could
require us to reduce the scope of or discontinue our operations.



We must comply with significant and
complex government regulations, compliance with which may delay or prevent the commercialization of our drug candidates.



The R&D, manufacture and marketing
of drug candidates are subject to regulation, primarily by the FDA in the United States and by comparable authorities in other
countries. These national agencies and other federal, state, local and foreign entities regulate, among other things, R&D activities
(including testing in primates and in humans) and the testing, manufacturing, handling, labeling, storage, record keeping, approval,
advertising and promotion of the products that we are developing. Noncompliance with applicable requirements can result in various
adverse consequences, including approval delays or refusals to approve drug licenses or other applications, suspension or termination
of clinical investigations, revocation of approvals previously granted, fines, criminal prosecution, recalls or seizures of products,
injunctions against shipping drugs and total or partial suspension of production and/or refusal to allow a company to enter into
governmental supply contracts.



The process of obtaining FDA approval has
historically been costly and time consuming. Current FDA requirements for a new human drug or biological product to be marketed
in the United States include: (1) the successful conclusion of pre-clinical laboratory and animal tests, if appropriate, to gain
preliminary information on the product’s safety; (2) filing with the FDA of an IND application to conduct human clinical
trials for drugs or biologics; (3) the successful completion of adequate and well-controlled human clinical investigations to establish
the safety and efficacy of the product for its recommended use; and (4) filing by a company and acceptance and approval by the
FDA of a New Drug Application, or NDA, for a drug product or a biological license application, or BLA, for a biological product
to allow commercial distribution of the drug or biologic. A delay in one or more of the procedural steps outlined above could be
harmful to us in terms of getting our drug candidates through clinical testing and to market.



The FDA reviews the results of the clinical
trials and may order the temporary or permanent discontinuation of clinical trials at any time if it believes the drug candidate
exposes clinical subjects to an unacceptable health risk. Investigational drugs used in clinical studies must be produced in compliance
with current good manufacturing practice, or GMP, rules pursuant to FDA regulations.



Sales outside the United States of products
that we develop will also be subject to regulatory requirements governing human clinical trials and marketing for drugs and biological
products and devices. The requirements vary widely from country to country, but typically the registration and approval process
takes several years and requires significant resources. In most cases, even if the FDA has not approved a product for sale in the
United States, the product may be exported to any country if it complies with the laws of that country and has valid marketing
authorization by the appropriate authority. There are specific FDA regulations that govern this process.



We also are subject to the following risks
and obligations, related to the approval of our products:



| | • | The FDA or foreign regulators may interpret data from pre-clinical testing and clinical trials in different ways than we interpret them.                                                                                                           
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | If regulatory approval of a product is granted, the approval may be limited to specific indications or limited with respect to its distribution.                                                                                                   
| | • | In addition, many foreign countries control pricing and coverage under their respective national social security systems.                                                                                                                          
| | • | The FDA or foreign regulators may not approve our manufacturing processes or manufacturing facilities.                                                                                                                                             
| | • | The FDA or foreign regulators may change their approval policies or adopt new regulations.                                                                                                                                                         
| | • | Even if regulatory approval for any product is obtained, the marketing license will be subject to continual review, and newly discovered or developed safety or effectiveness data may result in suspension or revocation of the marketing license.
| | • | If regulatory approval of the product candidate is granted, the marketing of that product would be subject to adverse event reporting requirements and a general prohibition against promoting products for unapproved or “off-label” uses.        
| | • | In some foreign countries, we may be subject to official release requirements that require each batch of the product we produce to be officially released by regulatory authorities prior to its distribution by us.                               
| | • | We will be subject to continual regulatory review and periodic inspection and approval of manufacturing modifications, including compliance with current GMP regulations.                                                                          



51







We can provide no assurance that
our drug candidates will obtain regulatory approval or that the results of clinical studies will be favorable.



The Company reports summary of its studies
as the data become available to the Company, after analyzing and verifying same, in its press releases.

In accord with our work-plan we filed a
pre-IND application with the US FDA, and held a meeting with the US FDA for our anti-influenza drug candidate, NV-INF-1 in March,
2012. Subsequent to that, we have a developed an orally available anti-influenza drug candidate based on our nanoviricides technology.
This may be the first time ever that a targeted nanomedicine with activity when given orally has been developed and such activity
demonstrated in vivo. We are now performing certain preclinical animal studies on this drug candidate. A set of these studies is
designed to evaluate the safety and toxicology in animal models. Another set of the studies is designed to evaluate the pharmacokinetics
and pharmacodynamics of the drug in animals. In addition, we have begun to perform efficacy studies using multiple different unrelated
types and subtypes of influenza viruses in order to assess the broad-spectrum anti-influenza activity of our drug candidates. The
efficacy studies are being performed in various in vitro (cell culture) models as well as in vivo (animal) models. In addition,
we are performing certain chemical and physical characterizations, chemistry synthesis process optimizations, and quality control
and quality assurance studies. Further, we need to scale up the syntheses to a larger scale of about 1kg. These chemistry, characterization,
manufacturing, and quality studies will form part of the CMC package (Chemistry, Manufacturing, and Controls). The data will then
be used to file an IND application or its overseas equivalent, towards the goal of obtaining regulatory approval for testing the
drugs in humans.



On July 23, 2012 the Company announced
that it had retained Australian Biologics Pty. Ltd, a regulatory affairs consulting firm, to coordinate the regulatory review and
approval to conduct the first human trials in Australia for FlucideTM, the Company’s broad spectrum anti-influenza drug.
Australian Biologics Pty. Ltd will also facilitate clinical trial site selection and development of clinical trial agreements which
we intend to pursue. The Company has previously retained the Biologics Consulting Group for helping us formulate our regulatory
strategy, design the studies to be performed, and develop the IND application for submission to the US FDA.



The testing, marketing and manufacturing
of any product for use in the United States will require approval from the FDA. We cannot predict with any certainty the amount
of time necessary to obtain such FDA approval and whether any such approval will ultimately be granted. Preclinical and clinical
trials may reveal that one or more products are ineffective or unsafe, in which event further development of such products could
be seriously delayed or terminated. Moreover, obtaining approval for certain products may require testing on human subjects of
substances whose effects on humans are not fully understood or documented. Delays in obtaining FDA or any other necessary regulatory
approvals of any proposed drug and failure to receive such approvals would have an adverse effect on the drug’s potential
commercial success and on our business, prospects, financial condition and results of operations. In addition, it is possible that
a proposed drug may be found to be ineffective or unsafe due to conditions or facts that arise after development has been completed
and regulatory approvals have been obtained. In this event, we may be required to withdraw such proposed drug from the market.
To the extent that our success will depend on any regulatory approvals from government authorities outside of the United States
that perform roles similar to that of the FDA, uncertainties similar to those stated above will also exist.



Even if we obtain regulatory approvals,
our marketed drug candidates will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and foreign
regulations, we could lose our approvals to market these drugs and our business would be seriously harmed.



Following any initial regulatory approval
of any drugs we may develop, we will also be subject to continuing regulatory review, including the review of adverse experiences
and clinical results that are reported after our drug candidates are made commercially available. This would include results from
any post-marketing tests or vigilance required as a condition of approval. The manufacturer and manufacturing facilities we use
to make any of our drug candidates will also be subject to periodic review and inspection by the FDA. The discovery of any previously
unknown problems with the drug, manufacturer or facility may result in restrictions on the drug or manufacturer or facility, including
withdrawal of the drug from the market. If we are required to withdraw all or more of our drugs from the market, we may be unable
to continue revenue generating operations. We do not have, and currently do not intend to develop, the ability to manufacture material
for our clinical trials or on a commercial scale. Reliance on third-party manufacturers entails risks to which we would not be
subject if we manufactured drugs ourselves, including reliance on the third-party manufacturer for regulatory compliance. Our drug
promotion and advertising is also subject to regulatory requirements and continuing FDA review.



Development of our drug candidates
requires a significant investment in R&D. Our R&D expenses in turn, are subject to variation based on a number of factors,
many of which are outside of our control. A sudden or significant increase in our R&D expenses could materially and adversely
impact our results of operations.



We have expended $ 18,479,356 on research
and development from inception through June 30, 2012.



We have an R&D and other costs budget
of $4,500,000 for the next 12 months. In the last three years we have established lead compounds against a number of viral diseases
and completed proof of principle studies against a number of viral diseases. We now have lead drug compounds against all Influenzas,
HIV, Viral diseases of the Eye, Oral and Genital Herpes, and Dengue viruses. We are currently working on identifying and establishing
collaborations with pharmaceutical companies as well as government institutions for the purpose of co- development of these products.
Notwithstanding these efforts, we will continue the development of these drugs, as well as our other drug development endeavors
that include Rabies, Dengue viruses, and Ebola/Marburg viruses.



52







The Company has the cash on hand to complete
the budgeted R&D work through June 30, 2014 at the current rate of expenditures. Should the pre-clinical studies of our Influenza,
HIV, Viral diseases of the Eye, and Oral and Genital Herpes drugs meet management’s expectations the Company will require
substantial additional funding to take any one or more of these drugs into ND filing(s) with the FDA. The Company projects it will
need an additional $15 million for the costs of hiring additional scientific staff and consulting firms to assist with FDA compliance,
material characterization, pharmaco-kinetic, pharmaco-dynamic and toxicology studies required for filing an IND and for constructing
or obtaining facilities to support such application.



The Company will be unable to proceed
with its business plan beyond June 30, 2014, without obtaining additional financing of approximately $3 - $5 million to support
its budgeted Research and Development and other costs.



Because we expect to expend substantial
resources on R&D, our success depends in large part on the results as well as the costs of our R&D. A failure in our R&D
efforts or substantial increase in our R&D expenses would adversely affect our results of operations. R&D expenditures
are uncertain and subject to much fluctuation. Factors affecting our R&D expenses include, but are not limited to:



|• | the number and outcome of clinical studies we are planning to conduct; for example, our R&D expenses may increase based on the number of late-stage clinical studies that we may be required to conduct;                                                                  
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | the number of drugs entering into pre-clinical development from research; for example, there is no guarantee that internal research efforts will succeed in generating sufficient data for us to make a positive development decision;                                    
|• | licensing activities, including the timing and amount of related development funding or milestone payments; for example, we may enter into agreements requiring us to pay a significant up-front fee for the purchase of in-process R&D that we may record as R&D expense.



We have no experience in conducting
or supervising clinical trials and must outsource all clinical trials.



We have no experience in conducting or
supervising clinical trials that must be performed to obtain data to submit in concert with applications for approval by the Food
and Drug Administration ("FDA"). The regulatory process to obtain approval for drugs for commercial sale involves numerous
steps. Drugs are subjected to clinical trials that allow development of case studies to examine safety, efficacy, and other issues
to ensure that sale of drugs meets the requirements set forth by various governmental agencies, including the FDA. In the event
that our protocols do not meet standards set forth by the FDA, or that our data is not sufficient to allow such trials to validate
our drugs in the face of such examination, we might not be able to meet the requirements that allow our drugs to be approved for
sale.



Because we have no experience in conducting
or supervising clinical trials, we must outsource our clinical trials to third parties. We have no control over their compliance
with procedures and protocols used to complete clinical trails in accordance with standards required by the agencies that approve
drugs for sale. If these subcontractors fail to meet these standards, the validation of our drugs would be adversely affected,
causing a delay in our ability to meet revenue-generating operations.



We are subject to risks inherent
in conducting clinical trials. The risk of non compliance with FDA-approved good clinical practices by clinical investigators,
clinical sites, or data management services could delay or prevent us from developing or ever commercializing our drug candidates.



Agreements with clinical investigators
and medical institutions for clinical testing and with other third parties for data management services place substantial responsibilities
on these parties, which could result in delays in, or termination of, our clinical trials if these parties fail to perform as expected.
For example, if any of our clinical trial sites fail to comply with FDA-approved good clinical practices, we may be unable to use
the data gathered at those sites. If these clinical investigators, medical institutions or other third parties do not carry out
their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data
they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trials may
be extended, delayed or terminated, and we may be unable to obtain regulatory approval for or successfully commercialize our drug
candidates.



We or regulators may suspend or terminate
our clinical trials for a number of reasons. We may voluntarily suspend or terminate our clinical trials if at any time we believe
that they present an unacceptable risk to the patients enrolled in our clinical trials. In addition, regulatory agencies may order
the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not
being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the patients
enrolled in our clinical trials.



Our clinical trial operations will be subject
to regulatory inspections at any time. If regulatory inspectors conclude that we or our clinical trial sites are not in compliance
with applicable regulatory requirements for conducting clinical trials, we may receive reports of observations or warning letters
detailing deficiencies, and we will be required to implement corrective actions. If regulatory agencies deem our responses to be
inadequate, or are dissatisfied with the corrective actions that we or our clinical trial sites have implemented, our clinical
trials may be temporarily or permanently discontinued, we may be fined, we or our investigators may be precluded from conducting
any ongoing or any future clinical trials, the government may refuse to approve our marketing applications or allow us to manufacture
or market our drug candidates or we may be criminally prosecuted. If we are unable to complete clinical trials and have our products
approved due to our failure to comply with regulatory requirements, we will be unable to commence revenue generating operations.



53







Efforts of government and third-party
payors to contain or reduce the costs of health care may adversely affect our revenues even if we were to develop an FDA approved
drug.



Our ability to earn sufficient returns
on our drug candidates may depend in part on the extent to which government health administration authorities, private health coverage
insurers and other organizations will provide reimbursement for the costs of such drugs and related treatments. Significant uncertainty
exists as to the reimbursement status of newly approved health care drugs, and we do not know whether adequate third-party coverage
will be available for our drug candidates. If our current and proposed drugs are not considered cost-effective, reimbursement to
the consumers may not be available or sufficient to allow us to sell drugs on a competitive basis. The failure of the government
and third-party payors to provide adequate coverage and reimbursement rates for our drug candidates could adversely affect the
market acceptance of our drug candidates, our competitive position and our financial performance.



If we fail to comply with applicable
continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approval, product recalls
and seizures, operating restrictions and criminal prosecutions.



Confidentiality agreements with employees
and others may not adequately prevent disclosure of trade secrets and other proprietary information. Disclosure of our trade secrets
or proprietary information could compromise any competitive advantage that we have.



We depend upon confidentiality agreements
with our officers, employees, consultants, and subcontractors to maintain the proprietary nature of the technology. These measures
may not afford us sufficient or complete protection, and may not afford an adequate remedy in the event of an unauthorized disclosure
of confidential information. In addition, others may independently develop technology similar to ours, otherwise avoiding the confidentiality
agreements, or produce patents that would materially and adversely affect our business, prospects, financial condition, and results
of operations.



We will rely upon licensed patents
to protect our technology. We may be unable to obtain or protect such intellectual property rights, and we may be liable for infringing
upon the intellectual property rights of others.



Our ability to compete effectively will
depend on our ability to maintain the proprietary nature of our technologies and the proprietary technology of others with which
we have entered into licensing agreements. We have exclusively licensed patent applications from TheraCour Pharma, Inc. and expect
to file patents of our own in the coming years. There can be no assurance that any of these patent applications will ultimately
result in the issuance of a patent with respect to the technology owned by us or licensed to us. The patent position of pharmaceutical
or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards
that the United States Patent and Trademark Office use to grant patents are not always applied predictably or uniformly and can
change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical
or biotechnology patents. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth
of claims that will be allowed in any patents issued to us or to others. Further, we rely on a combination of trade secrets, know-how,
technology and nondisclosure, and other contractual agreements and technical measures to protect our rights in the technology.
If any trade secret, know-how or other technology not protected by a patent were to be disclosed to or independently developed
by a competitor, our business and financial condition could be materially adversely affected.



We do not believe that any of the drug
candidates we are currently developing infringe upon the rights of any third parties nor are they infringed upon by third parties;
however, there can be no assurance that our technology will not be found in the future to infringe upon the rights of others or
be infringed upon by others. In such a case, others may assert infringement claims against us, and should we be found to infringe
upon their patents, or otherwise impermissibly utilize their intellectual property, we might be forced to pay damages, potentially
including treble damages, if we are found to have willfully infringed on such parties’ patent rights. In addition to any
damages we might have to pay, we may be required to obtain licenses from the holders of this intellectual property, enter into
royalty agreements, or redesign our drug candidates so as not to utilize this intellectual property, each of which may prove to
be uneconomical or otherwise impossible. Conversely, we may not always be able to successfully pursue our claims against others
that infringe upon our technology and the technology exclusively licensed from the TheraCour Pharma Inc. Thus, the proprietary
nature of our technology or technology licensed by us may not provide adequate protection against competitors.



Moreover, the cost to us of any litigation
or other proceeding relating to our patents and other intellectual property rights, even if resolved in our favor, could be substantial,
and the litigation would divert our management’s efforts. Uncertainties resulting from the initiation and continuation of
any litigation could limit our ability to continue our operations.



54







Other companies or organizations
may assert patent rights that prevent us from developing and commercializing our drug candidates.



We are in a relatively new scientific field
that has generated many different patent applications from organizations and individuals seeking to obtain important patents in
the field. Because the field is so new, very few of these patent applications have been fully processed by government patent offices
around the world, and there is a great deal of uncertainty about which patents will issue, when, to whom, and with what claims.
It is likely that there will be significant litigation and other proceedings, such as interference proceedings in various patent
offices, relating to patent rights in the field. Others may attempt to invalidate our patents or other intellectual property rights.
Even if our rights are not directly challenged, disputes among third parties could lead to the weakening or invalidation of those
intellectual property rights.



Thus, it is possible that one or more organizations
will hold patent rights to which we will need a license. Any license required under any patent may not be made available on commercially
acceptable terms, if at all. In addition, such licenses are likely to be non-exclusive and, therefore, our competitors may have
access to the same technology licensed to us. If we fail to obtain a required license and are unable to design around a patent,
we may be unable to effectively market some of our technology and drug candidates, which could limit our ability to generate revenues
or achieve profitability and possibly prevent us from generating revenue sufficient to sustain our operations.



We are dependent upon TheraCour Pharma
Inc. for the rights to develop the products we intend to sell.



Our ability to develop, manufacture and
sell the products the Company plans to develop is derived from our “Material Licensing Agreement” with TheraCour Pharma
Inc (“TheraCour”). While we hold the license in perpetuity, the Agreement may be terminated by TheraCour as a result
of: the insolvency or bankruptcy proceedings by or against the Company, a general assignment by the Company to is creditors, the
dissolution of the Company, cessation by the Company of business operations for ninety (90) days or more or the commencement by
the Company or an affiliate to challenge or invalidate the issued patents.



The Company does not hold the rights to
any other patents nor does the Company conduct its own research and development to develop other products to manufacture and sell.
If the Company’s Agreement with TheraCour is terminated, it is unlikely we will be able to commence revenue-generating operations
or that the Company could continue operating at all.



We lack suitable facilities for clinical
testing; reliance on third parties.



The Company does not have facilities that
could be used to conduct clinical testing. We expect to contract with third parties to conduct all clinical testing required to
obtain approvals for any drugs that we might develop. We currently outsource all clinical testing to a number of third parties
in various collaborations and service contracts. In addition, KARD Scientific is not under contract to perform studies for us,
and studies are commissioned with KARD on an as needed basis. Any of our collaborators or service providers may discontinue the
service contract or collaboration. We will then be required to modify our priorities and goals, obtain other collaborators or service
providers to replace the ones we lose, or we may even be forced to abandon certain drug development programs. In addition, any
failures by third parties to adequately perform their responsibilities may delay the submission of our proposed products for regulatory
approval, impair our ability to deliver our products on a timely basis or otherwise impair our competitive position.



We have limited manufacturing experience.



The Company has never manufactured products
in the highly regulated environment of pharmaceutical manufacturing. There are numerous regulations and requirements that must
be maintained to obtain licensure and the permits required to commence manufacturing, as well as additional requirements to continue
manufacturing pharmaceutical products. We do not own or lease facilities currently that could be used to manufacture any products
that might be developed by the Company, nor do we have the resources at this time to acquire or lease suitable facilities.

We have no sales and marketing personnel.



We are an early stage development Company
with limited resources. We do not currently have any products available for sale, so have not secured sales and marketing staff
at this early stage of operations. We cannot generate sales without sales or marketing staff and must rely on officers to provide
any sales or marketing services until such staff are secured, if ever. Even if we were to successfully develop approvable drugs,
we will not be able to sell these drugs if we or our third party manufacturers fail to comply with manufacturing regulations.



If we were to successfully develop approvable
drugs, before we can begin selling these drugs, we must obtain regulatory approval of our manufacturing facility and process or
the manufacturing facility and process of the third party or parties with whom we may outsource our manufacturing activities. In
addition, the manufacture of our products must comply with the FDA's current Good Manufacturing Practices regulations, commonly
known as GMP regulations. The GMP regulations govern quality control and documentation policies and procedures. Our manufacturing
facilities, if any in the future and the manufacturing facilities of our third party manufacturers will be continually subject
to inspection by the FDA and other state, local and foreign regulatory authorities, before and after product approval. We cannot
guarantee that we, or any potential third party manufacturer of our products, will be able to comply with the GMP regulations or
other applicable manufacturing regulations.



55







As of the date of this filing, we have
three employees and several consultants and independent contractors. The only consultant/contractor that we consider critical to
the Company is TheraCour, discussed in the next risk factor. KARD Scientific, another consultant/contractor (See ITEM 1. Background:
Collaborations and Subcontract Arrangements) is considered by the Company important but not critical as they are replaceable with
moderate difficulty. All other consultant/contractors would be more readily replaceable. While the Company’s current operations
cause it to be unlikely that we will need to grow and hire additional consultants, contractors or employees, if future preclinical
studies of our nanoviricide drugs and technology show significant improvements in efficacy over existing drugs, we intend to expand
our operations and staff materially. At that time our new employees may include a number of key managerial, technical, financial,
R&D and operations personnel who will not have been fully integrated into our operations. We would expect the expansion of
our business to place a significant strain on our limited managerial, operational and financial resources. We have no experience
in integrating multiple employees. Therefore, there is a substantial risk that we will not be able to integrate new employees into
our operations which would have a material adverse effect on our business, prospects, financial condition and results of operations.



We license our core technology from
TheraCour Pharma Inc. and we are dependent upon them as they have exclusive development rights. If we lose the right to utilize
any of the proprietary information that is the subject of this license agreement, we may incur substantial delays and costs in
development of our drug candidates .



The Company has entered into a Material
License Agreement with TheraCour Pharma, Inc. (“TheraCour”) (an approximately 23.24% shareholder of the Company’s
common stock) whereby TheraCour has exclusive rights to develop exclusively for us, the materials that comprise the core drugs
of our planned business. TheraCour is a development stage company with limited financial resources and needs the Company’s
progress payments to further the development of the nanoviricides. The Company controls the research and work TheraCour performs
on its behalf and no costs may be incurred without the prior authorization or approval of the Company.



Development costs charged by and paid to
TheraCour Pharma, Inc. were $6,617,004 since inception through June 30, 2012. No royalties are due to TheraCour from the Company’s
inception through June 30, 2012.



We depend on TheraCour and other third
parties to perform manufacturing activities effectively and on a timely basis. If these third parties fail to perform as required,
this could impair our ability to deliver our products on a timely basis or cause delays in our clinical trials and applications
for regulatory approval, and these events could harm our competitive position and adversely affect our ability to commence revenue
generating operations. The manufacturing process for pharmaceutical products is highly regulated, and regulators may shut down
manufacturing facilities that they believe do not comply with regulations. We and our manufacturers are subject to the FDA’s
current Good Manufacturing Practices, which are extensive regulations governing manufacturing processes, stability testing, record-keeping
and quality standards and similar regulations are in effect in other countries. In addition, our manufacturing operations are subject
to routine inspections by regulatory agencies.



Our collaborative relationships with
third parties could cause us to expend significant resources and incur substantial business risk with no assurance of financial
return.



We anticipate substantial reliance upon
strategic collaborations for marketing and the commercialization of our drug candidates and we may rely even more on strategic
collaborations for R&D of our other drug candidates. Our business depends on our ability to sell drugs to both government agencies
and to the general pharmaceutical market. Offering our drug candidates for non-medical applications to government agencies does
not require us to develop new sales, marketing or distribution capabilities beyond those already existing in the company. Selling
antiviral drugs, however, does require such development. We plan to sell antiviral drugs through strategic partnerships with pharmaceutical
companies. If we are unable to establish or manage such strategic collaborations on terms favorable to us in the future, our revenue
and drug development may be limited. To date, we have not entered into any strategic collaborations with third parties capable
of providing these services. In addition, we have not yet marketed or sold any of our drug candidates or entered into successful
collaborations for these services in order to ultimately commercialize our drug candidates.



If we determine to enter into R&D collaborations
during the early phases of drug development, our success will in part depend on the performance of our research collaborators.
We will not directly control the amount or timing of resources devoted by our research collaborators to activities related to our
drug candidates. Our research collaborators may not commit sufficient resources to our programs. If any research collaborator fails
to commit sufficient resources, our preclinical or clinical development programs related to this collaboration could be delayed
or terminated. Also, our collaborators may pursue existing or other development-stage products or alternative technologies in preference
to those being developed in collaboration with us. Finally, if we fail to make required milestone or royalty payments to our collaborators
or to observe other obligations in our agreements with them, our collaborators may have the right to terminate those agreements.



Manufacturers producing our drug candidates
must follow current GMP regulations enforced by the FDA and foreign equivalents. If a manufacturer of our drug candidates does
not conform to the current GMP regulations and cannot be brought up to such a standard, we will be required to find alternative
manufacturers that do conform. This may be a long and difficult process, and may delay our ability to receive FDA or foreign regulatory
approval of our drug candidates and cause us to fall behind on our business objectives.



56







Establishing strategic collaborations is
difficult and time-consuming. Our discussion with potential collaborators may not lead to the establishment of collaborations on
favorable terms, if at all. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory
or intellectual property position. Even if we successfully establish new collaborations, these relationships may never result in
the successful development or commercialization of our drug candidates or the generation of sales revenue. To the extent that we
enter into collaborative arrangements, our drug revenues are likely to be lower than if we directly marketed and sold any drugs
that we may develop.



Management of our relationships with our
collaborators will require:



|• | significant time and effort from our management team;                                                         
|- | --------------------------------------------------------------------------------------------------------------
|• | coordination of our marketing and R&D programs with the marketing and R&D priorities of our collaborators; and
|• | effective allocation of our resources to multiple projects.                                                   



We employ the use of certain chemical
and biological agents and compounds that may be deemed hazardous and we are therefore subject to various environmental laws and
regulations. Compliance with these laws and regulations may result in significant costs, which could materially reduce our ability
to become profitable.



We use hazardous materials, including chemicals
and biological agents and compounds that could be dangerous to human health and safety or the environment. As appropriate, we safely
store these materials and wastes resulting from their use at our laboratory facility pending their ultimate use or disposal. We
contract with a third party to properly dispose of these materials and wastes. We are subject to a variety of federal, state and
local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials and wastes.
We may incur significant costs complying with environmental laws and regulations adopted in the future.



If we use biological and hazardous
materials in a manner that causes injury, we may be liable for damages.



Our R&D and manufacturing activities
will involve the use of biological and hazardous materials. Although we believe our safety procedures for handling and disposing
of these materials comply with federal, state and local laws and regulations, we cannot entirely eliminate the risk of accidental
injury or contamination from the use, storage, handling or disposal of these materials. We carry $1,000,000 casualty and general
liability insurance policies. Accordingly, in the event of contamination or injury, we could be held liable for damages or penalized
with fines in an amount exceeding our resources and insurance coverage, and our clinical trials or regulatory approvals could be
suspended.



We may not be able to attract and
retain highly skilled personnel.



Our ability to attract and retain highly
skilled personnel is critical to our operations and expansion. We face competition for these types of personnel from other pharmaceutical
companies and more established organizations, many of which have significantly larger operations and greater financial, technical,
human and other resources than us. We may not be successful in attracting and retaining qualified personnel on a timely basis,
on competitive terms, or at all. If we are not successful in attracting and retaining these personnel, our business, prospects,
financial condition and results of operations will be materially and adversely affected.



We depend upon our senior management
and their loss or unavailability could put us at a competitive disadvantage.



We currently depend upon the efforts and
abilities of our management team. The loss or unavailability of the services of any of these individuals for any significant period
of time could have a material adverse effect on our business, prospects, financial condition and results of operations. We have
not obtained, do not own, nor are we the beneficiary of key-person life insurance.



The Company believes its two executive
officers, Eugene Seymour, Chief Executive Officer and Chief Financial Officer and Anil Diwan, President and Chairman of Board,
are critical to the success of the Company as well as the terms of the employment agreements between them and the Company:



On March 3, 2010, the Company entered into
employment agreements with its two executive officers, Eugene Seymour, Chief Executive Officer and Chief Financial Officer and
Anil Diwan, President and Chairman of Board. Both agreements provide a minimum annual base salary of $250,000 for a term of four
years. In addition, Dr. Seymour and Dr. Diwan were eligible for an increase in base salary to $275,000 once the Company consummated
a financing with gross proceeds of at least $5,000,000. Also, the base salary shall increase to $300,000 for Dr. Seymour and $300,000
for Dr. Diwan if the Company becomes listed on a national stock exchange.



As additional compensation under the employment
agreements, the Company issued 250,000 shares of the Company’s Series A Convertible Preferred Stock and shall issue an additional
250,000 shares of Series A Convertible Preferred Stock on each anniversary of the respective employment agreements.



57







On March 3, 2010, the Company entered into
an employment agreement with Dr. Jayant Tatake to serve as Vice President of Research and Development. The employment agreement
provides for term of four years with a base salary of $150,000. In addition, the Company issued 93,750 shares of Series A Convertible
Preferred Stock and 125,000 shares of common stock, and will issue an additional 93,750 shares of Series A Convertible Preferred
Stock and 125,000 shares of common stock on each anniversary date of the agreement.



On March 3, 2010, the Company entered into
an employment agreement with Dr. Randall Barton to serve as Chief Scientific Officer. The employment agreement provides for a term
of four years with a base salary of $150,000. In addition, the Company issued 125,000 shares of common stock, and will issue an
additional 125,000 shares of common stock on each anniversary date of the agreement.



There are conflicts of interest among
our officers, directors and stockholders.



Certain of our executive officers and directors
and their affiliates are engaged in other activities and have interests in other entities on their own behalf or on behalf of other
persons. Neither we nor our stockholders will have any rights in these ventures or their income or profits. Specifically, Anil
Diwan owns approximately 70% of the capital stock of TheraCour Pharma, Inc. which owns approximately twenty-one and forty four
one hundredths percent (21.44%) of our Common Stock, provides the Company the nanomaterials with which it intends to develop its
products and is the holder of the intellectual property rights the Company uses to conduct its operations. While the Company is
not aware of any conflict that has arisen or any transaction which has not been conducted on an arm’s length basis to date,
Dr. Diwan may have conflicting fiduciary duties between the Company and TheraCour.



Currently, the Company does not have any
policy in place to deal with such should such a conflict arise.

In particular:



|• | Our executive officers or directors or their affiliates may have an economic interest in, or other business relationship with, partner companies that invest in us.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Our executive officers or directors or their affiliates have interests in entities that provide products or services to us.                                        



In any of these cases:



|• | Our executive officers or directors may have a conflict between our current interests and their personal financial and other interests in another business venture.                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Our executive officers or directors may have conflicting fiduciary duties to us and the other entity.                                                                                                                  
|• | The terms of transactions with the other entity may not be subject to arm’s length negotiations and therefore may be on terms less favorable to us than those that could be procured through arm’s length negotiations.



We anticipate entering into contracts
with various U.S. government agencies. In contracting with government agencies, we will be subject to various federal contract
requirements. Future sales to U.S. government agencies will depend, in part, on our ability to meet these requirements, certain
of which we may not be able to satisfy.



We may enter into contracts with various
U.S. government agencies which have special contracting requirements that give the government agency various rights or impose on
the other party various obligations that can make the contracts less favorable to the non- government party. Consequently, if a
large portion of our revenue is attributable to these contracts, our business may be adversely affected should the governmental
parties exercise any of these additional rights or impose any of these additional obligations.



U.S. government contracts typically contain
unfavorable termination provisions and are subject to audit and modification by the government at its sole discretion, which subjects
us to additional risks. These risks include the ability of the U.S. government to unilaterally:



|• | suspend or prevent us for a set period of time from receiving new contracts or extending existing contracts based on violations or suspected violations of laws or regulations;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | terminate our existing contracts;                                                                                                                                              
|• | reduce the scope and value of our existing contracts;                                                                                                                          
|• | audit and object to our contract-related costs and fees, including allocated indirect costs;                                                                                   
|• | control and potentially prohibit the export of our drug candidates; and                                                                                                        
|• | change certain terms and conditions in our contracts.                                                                                                                          



The U.S. government may terminate any of
its contracts with us either for its convenience or if we default by failing to perform in accordance with the contract schedule
and terms. Termination for convenience provisions generally enable us to recover only our costs incurred or committed, and settlement
expenses and profit on the work completed prior to termination. Termination for default provisions do not permit these recoveries
and make us liable for excess costs incurred by the U.S. government in procuring undelivered items from another source.



58







As a U.S. government contractor, we may
become subject to periodic audits and reviews. Based on the results of these audits, the U.S. government may adjust our contract-related
costs and fees, including allocated indirect costs. As part of any such audit or review, the U.S. government may review the adequacy
of, and our compliance with, our internal control systems and policies, including those relating to our purchasing, property, compensation
and/or management information systems. In addition, if an audit or review uncovers any improper or illegal activity, we may be
subject to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeiture of profits,
suspension of payments, fines and suspension or prohibition from doing business with the U.S. government. We could also suffer
serious harm to our reputation if allegations of impropriety were made against us. In addition, under U.S. government purchasing
regulations, some of our costs, including most financing costs, amortization of intangible assets, portions of our R&D costs
and some marketing expenses, may not be reimbursable or allowed under our contracts. Further, as a U.S. government contractor,
we may become subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other
legal actions and liabilities to which purely private sector companies are not.



We may fail to obtain contracts to
supply the U.S. government, and we may be unable to commercialize our drug candidates.



The U.S. government has undertaken commitments
to help secure improved countermeasures against bio-terrorism. The process of obtaining government contracts is lengthy and uncertain,
and we must compete for each contract. Moreover, the award of one government contract does not necessarily secure the award of
future contracts covering the same drug. If the U.S. government makes significant future contract awards for the supply of its
emergency stockpile to our competitors, our business will be harmed and it is unlikely that we will be able to ultimately commercialize
our competitive drug candidate.



In addition, the determination of when
and whether a drug is ready for large scale purchase and potential use will be made by the government through consultation with
a number of government agencies, including the FDA, the NIH, the CDC and the Department of Homeland Security. Congress has approved
measures to accelerate the development of bio-defense drugs through NIH funding, the review process by the FDA and the final government
procurement contracting authority. While this may help speed the approval of our drug candidates, it may also encourage competitors
to develop their own drug candidates.



The market for government stockpiling of
H5N1 medicines and other antiviral drugs in the Strategic National Stockpile is fairly new and uncertain.



At the present many governments have already
stockpiled influenza medicines for H5N1. We cannot predict with certainty the size of the market, if any for all of the antiviral
drugs that the governments may want to stockpile. Consequently, we cannot predict whether sales, if any, to governments will be
sufficient to fund our business plan and commence revenue generating operations.



If the U.S. government fails to continue
funding bio-defense drug candidate development efforts or fails to purchase sufficient quantities of any future bio-defense drug
candidate, we may be unable to generate sufficient revenues to continue operations.



We hope to receive funding from the U.S.
government for the development of our bio-defense drug candidates. Changes in government budgets and agendas, however, may result
in future funding being decreased and de-prioritized, and government contracts typically contain provisions that permit cancellation
in the event that funds are unavailable to the government agency. Furthermore, we cannot be certain of the timing of any future
funding, and substantial delays or cancellations of funding could result from protests or challenges from third parties. If the
U.S. government fails to continue to adequately fund R&D programs, we may be unable to generate sufficient revenues to continue
operations. Similarly, if we develop a drug candidate that is approved by the FDA, but the U.S. government does not place sufficient
orders for this drug, our future business may be harmed.



Risks Related to the Biotechnology/Biopharmaceutical
Industry



The biotechnology and biopharmaceutical
industries are characterized by rapid technological developments and a high degree of competition. We may be unable to compete
with enterprises equipped with more substantial resources than us.



The biotechnology and biopharmaceutical
industries are characterized by rapid technological developments and a high degree of competition based primarily on scientific
and technological factors. These factors include the availability of patent and other protection for technology and products, the
ability to commercialize technological developments and the ability to obtain government approval for testing, manufacturing and
marketing.



Our anti-influenza drug in development,
Flucide, would compete with neuraminidase inhibitors Tamiflu and Relenza, anti-influenza drugs that are sold by Roche and Glaxo
SmithKline (GSK), respectively. Generic competitors include amantadine and rimantadine, both oral tablets that only inhibit the
replication of the influenza A virus. BioCryst Pharmaceuticals, Inc. is developing IV Infusions formulations of peramivir, an influenza
neuraminidase inhibitor, for the treatment of influenza. Peramivir is approved in Japan and had obtained emergency use authorization
in the US. Several H5N1 bird flu, and influenza novelH1N1/2009 vaccines are also in development worldwide. Several companies are
developing anti-influenza drugs and vaccines.



59







We have recently completed preliminary
animal studies against HIV that have resulted in the finding that certain of our drug candidates were superior to the oral HAART
cocktail in SCID-hu Thy/Liv humanized mice lethally infected with HIV-I. We thus believe that we have a very strong lead drug identified
against HIV. There are several companies with anti-HIV drugs in the market. A new drug, maraviroc from Pfizer has recently been
approved, which falls in a new class called CCR5-blockers. Prior to this, two new drugs in a new class called Integrase Inhibitors
have been approved. A drug in the class called Entry & Fusion Inhibitors, enfuvirtide, (FuzeonTM, Roche) has also been available.
Additionally, the classical drugs, NRTI’s, NNRTI’s and PI’s (protease inhibitors) are used in various combinations.
A three drug combo has been approved. A four drug combo is expected to be approved soon. The HIVCide-I nanoviricide is expected
to act by a very different kind of mechanism, defining a new class of drugs, that is complementary to the existing classes of anti-HIV
drugs.



Our nanoviricide eye drops for viral diseases
of the eye are currently under development. We have shown significant clinical efficacy in an animal model of EKC (adenoviral epidemic
kerato-conjunctivitis). We have also shown very strong in vitro efficacy in HSV-1 reduction in cell cultures. We believe that this
drug has a very good efficacy and safety profile, based on current data. There are no approved drugs against all viral diseases
of the eye, or adenoviral EKC in particular. Several drugs are available for the treatment of herpes keratitis. Idoxuridine, vidarabine,
acyclovir and its derivatives, are among the leading ones. Aganocide is under development. We believe that the nanoviricide eye
drops should have a significant advantage in terms of reduced frequency of application needed and simple application procedure.



Our HCV drugs are at the earliest stage
of development. There are a growing number of anti-HCV drugs being sold or in advanced stages of clinical development. Two new
protease inhibitors have been approved. Companies with anti-HIV and HCV products include Bristol-Myers Squibb Company (BMS), Roche,
Boehringer Ingelheim, Merck & Co., Inc. (Merck), Abbott Laboratories, and Schering Plough, in addition to several other pharmaceutical
and biotechnology firms.



We compete with specialized biopharmaceutical
firms in the United States, Europe and elsewhere, as well as a growing number of large pharmaceutical companies that are applying
biotechnology to their operations. Many biopharmaceutical companies have focused their development efforts in the human therapeutics
area, including cancer. Many major pharmaceutical companies have developed or acquired internal biotechnology capabilities or made
commercial arrangements with other biopharmaceutical companies. These companies, as well as academic institutions, government agencies
and private research organizations, also compete with us in recruiting and retaining highly qualified scientific personnel and
consultants. Our ability to compete successfully with other companies in the pharmaceutical field will also depend to a considerable
degree on the continuing availability of capital to us.



We are aware of numerous products under
development or manufactured by competitors that are used for the prevention or treatment of certain diseases we have targeted for
drug development. Various companies are developing biopharmaceutical products that potentially directly compete with our drug candidates
even though their approach to such treatment is different.



We expect that our drug candidates under
development and in clinical trials will address major markets within the anti-viral sector. Our competition will be determined
in part by the potential indications for which drugs are developed and ultimately approved by regulatory authorities. Additionally,
the timing of the market introduction of some of our potential drugs or of competitors’ products may be an important competitive
factor. Accordingly, the relative speed with which we can develop drugs, complete pre-clinical testing, clinical trials, approval
processes and supply commercial quantities to market are important competitive factors. We expect that competition among drugs
approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price and patent
protection.



The successful development of biopharmaceuticals
is highly uncertain. A variety of factors including, pre-clinical study results or regulatory approvals, could cause us to abandon
development of our drug candidates.



Successful development of biopharmaceuticals
is highly uncertain and is dependent on numerous factors, many of which are beyond our control. Products that appear promising
in the early phases of development may fail to reach the market for several reasons including:



|• | pre-clinical study results that may show the product to be less effective than desired (e.g., the study failed to meet its primary objectives) or to have harmful or problematic side effects;                                                                                                                                                                                                                                                        
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | failure to receive the necessary regulatory approvals or a delay in receiving such approvals. Among other things, such delays may be caused by slow enrollment in clinical studies, length of time to achieve study endpoints, additional time requirements for data analysis or a IND and later NDA, preparation, discussions with the FDA, an FDA request for additional pre-clinical or clinical data or unexpected safety or manufacturing issues;
|• | manufacturing costs, pricing or reimbursement issues, or other factors that make the product not economical; and                                                                                                                                                                                                                                                                                                                                      
|• | the proprietary rights of others and their competing products and technologies that may prevent the product from being commercialized.                                                                                                                                                                                                                                                                                                                



60







Success in pre-clinical and early clinical
studies does not ensure that large-scale clinical studies will be successful. Clinical results are frequently susceptible to varying
interpretations that may delay, limit or prevent regulatory approvals. The length of time necessary to complete clinical studies
and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly from one
product to the next, and may be difficult to predict.



Risks Related to the Securities Markets
and Investments in Our Common Stock



Because our common stock is quoted
on the "OTC Bulletin Board," your ability to sell your shares in the secondary trading market may be limited.



Our common stock is currently quoted on
the OTC Bulletin Board. Consequently, the liquidity of our common stock is impaired, not only in the number of shares that are
bought and sold, but also through delays in the timing of transactions, and coverage by security analysts and the news media, if
any, of our company. As a result, prices for shares of our common stock may be lower than might otherwise prevail if our common
stock was quoted and traded on Nasdaq or a national securities exchange.



Because our shares are "penny
stocks," you may have difficulty selling them in the secondary trading market.



Federal regulations under the Securities
Exchange Act of 1934 regulate the trading of so-called "penny stocks," which are generally defined as any security not
listed on a national securities exchange or Nasdaq, priced at less than $5.00 per share and offered by an issuer with limited net
tangible assets and revenues. Since our common stock currently is quoted on the OTC Bulletin Board at less than $5.00 per share,
our shares are "penny stocks" and may not be quoted unless a disclosure schedule explaining the penny stock market and
the risks associated therewith is delivered to a potential purchaser prior to any trade.



In addition, because our common stock is
not listed on Nasdaq or any national securities exchange and currently is quoted at and trades at less than $5.00 per share, trading
in our common stock is subject to Rule 15g-9 under the Securities Exchange Act. Under this rule, broker-dealers must take certain
steps prior to selling a "penny stock," which steps include:



|• | obtaining financial and investment information from the investor;                                          
|- | -----------------------------------------------------------------------------------------------------------
|• | obtaining a written suitability questionnaire and purchase agreement signed by the investor; and           
|• | providing the investor a written identification of the shares being offered and the quantity of the shares.



If these penny stock rules are not followed
by the broker-dealer, the investor has no obligation to purchase the shares. The application of these comprehensive rules will
make it more difficult for broker-dealers to sell our common stock and our shareholders, therefore, may have difficulty in selling
their shares in the secondary trading market.



Our stock price may be volatile and
your investment in our common stock could suffer a decline in value.



The price of our common stock, as quoted
on the NASD OTC Bulletin Board, may fluctuate significantly in response to a number of factors, many of which are beyond our control.
These factors include:



|• | progress of our products through the regulatory process;                                                                         
|- | ---------------------------------------------------------------------------------------------------------------------------------
|• | results of preclinical studies and clinical trials;                                                                              
|• | announcements of technological innovations or new products by us or our competitors;                                             
|• | government regulatory action affecting our products or our competitors' products in both the United States and foreign countries;
|• | developments or disputes concerning patent or proprietary rights;                                                                
|• | general market conditions for emerging growth and pharmaceutical companies;                                                      
|• | economic conditions in the United States or abroad;                                                                              
|• | actual or anticipated fluctuations in our operating results;                                                                     
|• | broad market fluctuations; and                                                                                                   
|• | changes in financial estimates by securities
        analysts.                                                                   

A registration of a significant amount
of our outstanding restricted stock may have a negative effect on the trading price of our stock.



At June 30, 2012, shareholders of the Company
had 53,145,545 shares of restricted stock, or 34.15% of the outstanding common stock. If we were to file a registration statement
including all of these shares, and the registration is allowed by the SEC, these shares would be freely tradable upon the effectiveness
of the planned registration statement. If investors holding a significant number of freely tradable shares decide to sell them
in a short period of time following the effectiveness of a registration statement, such sales could contribute to significant downward
pressure on the price of our stock.



61







We do not intend to pay any cash
dividends in the foreseeable future and, therefore, any return on your investment in our capital stock must come from increases
in the fair market value and trading price of the capital stock.



We have not paid any cash dividends on
our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future. We intend to retain future
earnings, if any, for reinvestment in the development and expansion of our business. Any credit agreements, which we may enter
into with institutional lenders, may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be
at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital
requirements and any other factors that the board of directors decides is relevant. Therefore, any return on your investment in
our capital stock must come from increases in the fair market value and trading price of the capital stock.



We may issue additional equity shares
to fund the Company’s operational requirements which would dilute share ownership.



The Company's continued viability depends
on its ability to raise capital. Changes in economic, regulatory or competitive conditions may lead to cost increases. Management
may also determine that it is in the best interest of the Company to develop new services or products. In any such case additional
financing is required for the Company to meet its operational requirements. There can be no assurances that the Company will be
able to obtain such financing on terms acceptable to the Company and at times required by the Company, if at all. In such event,
the Company may be required to materially alter its business plan or curtail all or a part of its operational plans as detailed
further in Management’s Discussion and Analysis in this Form 10-K. While the Company currently has no offers to sell its
securities to obtain financing, sale or the proposed sale of substantial amounts of our common stock in the public markets may
adversely affect the market price of our common stock and our stock price may decline substantially. In the event that the Company
is unable to raise or borrow additional funds, the Company may be required to curtail significantly its operational plans as further
detailed in Requirements for Additional Capital in the Management Discussion and Analysis of this Form 10-K.



The Company is authorized to issue up to
300,000,000 total shares of Common Stock without additional approval by shareholders. As of June 30, 2012, we had 155,612,193 of
common stock outstanding, and warrants and options convertible to 11,661,950 shares of common stock outstanding.



Because our common stock is quoted
only on the OTC Bulletin Board, your ability to sell your shares in the secondary trading market may be limited.



Our common stock is quoted only on the
OTC Bulletin Board. Consequently, the liquidity of our common stock is impaired, not only in the number of shares that are bought
and sold, but also through delays in the timing of transactions, and coverage by security analysts and the news media, if any,
of our company. As a result, prices for shares of our common stock may be different than might otherwise prevail if our common
stock was quoted or traded on a national securities exchange such as the New York Stock Exchange.



Large amounts of our common stock
will be eligible for resale under Rule 144.



As of June 30, 2012, 53,145,545 of 155,612,193
issued and outstanding shares of the Company’s common stock were restricted securities as defined under Rule 144 of the Securities
Act of 1933, as amended (the “Act”) and under certain circumstances may be resold without registration pursuant to
Rule 144.



Approximately 7,979,785 shares of our restricted
shares of common stock are held by non-affiliates who may avail themselves of the public information requirements and sell their
shares in accordance with Rule 144. As a result, some or all of these shares may be sold in accordance with Rule 144 potentially
causing the price of the Company’s shares to decline.



In general, under Rule 144, a person (or
persons whose shares are aggregated) who has satisfied a six month holding period may, under certain circumstances, sell within
any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common
stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale. Rule 144 also permits,
under certain circumstances, the sale of securities, without any limitation, by a person who is not an Affiliate, as such term
is defined in Rule 144(a)(1), of the Company and who has satisfied a one-year holding period. Any substantial sale of the Company's
common stock pursuant to Rule 144 may have an adverse effect on the market price of the Company’s shares. This filing will
satisfy certain public information requirements necessary for such shares to be sold under Rule 144.



The requirements of complying with
the Sarbanes-Oxley act may strain our resources and distract management.



We are subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002. The costs
associated with these requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual,
quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain
effective disclosure controls and procedures and internal controls over financial reporting. Historically, as a private company
we have maintained a small accounting staff, but in order to maintain and improve the effectiveness of our disclosure controls
and procedures and internal control over financial reporting, significant additional resources and management oversight will be
required. This includes, among other things, retaining independent public accountants. This effort may divert management’s
attention from other business concerns, which could have a material adverse effect on our business, financial condition, results
of operations and cash flows. In addition, we may need to hire additional accounting and financial persons with appropriate public
company experience and technical accounting knowledge, and we cannot assure you that we will be able to do so in a timely fashion.



62













Sales of additional equity securities
may adversely affect the market price of our common stock and your rights in the Company may be reduced.



We expect to continue to incur drug development
and selling, general and administrative costs, and in order to satisfy our funding requirements, we may need to sell additional
equity securities. Our stockholders may experience substantial dilution and a reduction in the price that they are able to obtain
upon sale of their shares. Also, any new securities issued may have greater rights, preferences or privileges than our existing
common stock that may adversely affect the market price of our common stock and our stock price may decline substantially.



ITEM 1B: UNRESOLVED STAFF
COMMENTS.



None.



ITEM 2: PROPERTIES



Description of Property



The Company’s principal executive
offices are located at 135 Wood Street, West Haven, Connecticut, and include approximately 7,000 square feet of office and laboratory
space at a base monthly rent of $7,311. Commencing September 1, 2008 the Company rented additional storage space and the base monthly
rent increased to $8,695. The lease expired on February 28, 2011 and the Company has continued to occupy the space on a month to
month basis.



We subcontract the laboratory research
and development work to TheraCour Pharma, Inc., which has a 5,000 square foot laboratory in the same building. Management believes
that the space is sufficient for the Company to monitor the developmental progress at its subcontractors.



The Company is currently engaged in a national
search for an R&D, as well as manufacturing facility. The manufacturing portion of the facility will eventually have to be
certified by the FDA in order for the Company to produce experimental materials that can be sent to outside scientists for pharmaco-kinetic,
pharmaco-dynamic and toxicology studies. These three sets of studies must be completed prior to the Company filing an IND with
the FDA to begin the human safety and efficacy trials (Phase I and Phase II).



ITEM 3: LEGAL PROCEEDINGS.



On or about December 22, 2011, the Connecticut
Secretary of the State, as agent for service of process for the Company, was served with a Summons and Complaint in the case entitled
David F. Gencarelli, Esq. d/b/a Gencarelli Group v. Nanoviricides, Inc. (Case No. 2011-CA-006555-B) filed in the Superior
Court for the district of Columbia Civil Division.  The Complaint for breach of contract, unjust enrichment, and quantum merit
claims unpaid legal fees of $77,601.00.The claims and the Company’s counterclaims were settled for $40,000 without admission
of wrongdoing by either party.



On or about January 18, 2012, the Nevada
Agency and Transfer Company, as agent for service of process for the Company in Nevada, was served with a Summons and Complaint
in the case entitled Yidam, Ltd. v. Eugene Seymour, Anil Diwan, and Nanoviricides, Inc. (Case No. A-12-654437-B) answerable
in the Eighth Judicial District Court of the State of Nevada – Clark County (“Court”).  The Complaint seeks
to compel inspection of the Company’s books and records.  On or about February 14, 2012, we filed a Motion to Dismiss
the Complaint for failure to state a claim upon which relief can be granted.  The Complaint further seeks unspecified “injunctive
relief” in furtherance of the demand for inspection to which it is not entitled.  The Complaint by a holder of less
than 1 percent of the Company’s common stock seeks to, inter alia, inspect documents and records of the company to which
it is not entitled and in a form and manner the Company argues is not authorized by statute. Management believes that this lawsuit
has no merit or basis and intends to vigorously defend it. Monetary damages have not been claimed and as a result no accrual has
been made in relation to this litigation. On April 9, 2012, the Court dismissed the Complaint for failure to state a Claim for
which relief could be granted.



63







On or around April 13, 2012, the Nevada
Agency and Transfer Company, as agent for service of process for the Company in Nevada, was served with a Summons and Complaint
in the case entitled Yidam, Ltd. v. Eugene Seymour, Anil Diwan, and Nanoviricides, Inc. ((Case No. A-12-659535-B) answerable in
the Eighth Judicial District Court of the State of Nevada – Clark County (“Court”). The Complaint seeks to compel
inspection of the Company’s books and records. On or about May 2, 2012, we filed a Demand for Security of Costs. Upon filing
of the Demand, proceedings relative to the Company are stayed pending posting of the demanded security (or plaintiff engages in
motion practice about the Demand).  The Company may seek dismissal of the complaint if plaintiff has not posted the demanded
security (or engaged the court). The Complaint further seeks unspecified “injunctive relief” in furtherance of the
demand for inspection to which the Company believes it is not entitled. The Complaint, by a holder of less than 1 percent of the
common stock of the Company, seeks to, inter alia, inspect documents and records of the company to which it is not entitled and
in a form and manner the Company argues is not authorized by statute. On or July 18, 2012, the Plaintiff moved to amend its answer.
On or about August 8, 2012, 2012, we filed our opposition to Plaintiff’s Motion to Amend and a Motion to Dismiss the Complaint
for failure to state a claim upon which relief can be granted. On or September 13, 2012 the court granted the Plaintiff’s
Motion to Amend. On or about September 17, 2012 the Plaintiff served its “Second Amended Shareholder Derivative Complaint”
upon our Counsel in Nevada. As in the prior two complaints that this Plaintiff has filed in this action, this Second Amended Complaint
seeks to compel inspection of the Company’s books and records, seeks injunctive relief, an accounting and alleges breach
of Fiduciary by Dr. Seymour and Dr. Diwan. On or about October 11, 2012, we filed a Motion to Dismiss the Complaint for failure
to state a claim upon which relief can be granted. Management believes that this lawsuit has no merit or basis and intends to vigorously
defend it. Specific monetary damages have not been claimed and as a result no accrual has been made in relation to this litigation.



There are no other legal proceedings against
the Company to the best of the Company’s knowledge as of the date hereof and to the Company’s knowledge, no action,
suit or proceeding has been threatened against the Company.



ITEM 4: MINE SAFETY DISCLOSURES.



Not applicable.



64







PART II



ITEM 5: MARKET FOR REGISTRANT'S COMMON
EQUITY RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.



The Company’s Common Stock was initially
traded on the Pink Sheets under the symbol NNVC. From June 29, 2007, the Company’s Common Stock has been quoted on the Over
The Counter Bulletin Board. The table below sets forth the high and low prices for the Company’s Common Stock for the quarters
included within the past two fiscal years. Quotations reflect inter-dealer prices, without retail mark-up, mark-down commission,
and may not represent actual transactions. Since the Company's common stock trades sporadically, there is not an established active
public market for its common stock. No assurance can be given that an active market will exist for the Company's common stock and
the Company does not expect to declare dividends in the foreseeable future since the Company intends to utilize its earnings, if
any, to finance its future growth, including possible acquisitions.





|Quarter ended      |  | Low price |     |  | High price |  
|------------------ |  | --------- | --- |  | ---------- | -
|                   |  |           |     |  |            |  
|June 30, 2012      |  | $         | .56 |  |            | $
|March 31, 2012     |  | $         | .52 |  |            | $
|December 31,2011   |  | $         | .52 |  |            | $
|September 30, 2011 |  | $         | .93 |  |            | $
|June 30, 2011      |  | $         | .56 |  |            | $
|March 31, 2011     |  | $         | .69 |  |            | $
|December 31, 2010  |  | $         | .59 |  |            | $
|September 30, 2010 |  | $         | .93 |  |            | $





Number of Shareholders.



As of June 30, 2012, a total of 155,612,193
of the Company’s common stock (shares) are outstanding and held by approximately 197 shareholders of record of our common
stock. This figure does not reflect the persons or entities that hold their stock in nominee or street name through various brokerage
firms . Of this amount, 102,466,648 shares are unrestricted. Approximately 7,979,785 shares are restricted securities held by
non-affiliates, and the remaining 45,165,760 shares are restricted securities held by affiliates. These shares may only be sold
in accordance with Rule 144. As of June 30, 2012, there were 11,661,950 warrants and 1,875,000 stock options to purchase the Company’s
Common Stock outstanding.



Dividends.



The Company has not paid any cash dividends
since its inception. The Company currently intends to retain any earnings for use in its business, and therefore does not anticipate
paying dividends in the foreseeable future.



Long-Term Incentive Plans Awards in
Last Fiscal Year



None.



Recent Sales of Unregistered Securities.



During the fiscal years ended June 30,
2012 2011, and 2010, the Company issued the following securities exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) of the Securities Act. No underwriting or other compensation was paid in connection with these transactions:



For the year ended June 30, 2012, the Company's
Board of Directors authorized the issuance of 93,183 shares of its common stock with a restrictive legend for consulting services.
The Company recorded an expense of $72,000.



In June 2012, the Company's Board of Directors
authorized the issuance of 10,000 shares of its Series A Preferred stock with a restrictive legend pursuant to a Consulting Agreement.



In June 2012, the Company authorized the
issuance of 1,050,000 shares of its Series A Convertible Preferred stock $.001 par value with a restrictive legend as additional
stock based compensation for successful prosecution of the Company’s Patent applications.



65







In May, 2012, the Scientific Advisory Board
(SAB) was granted warrants to purchase 60,000 shares of common stock at $0.79 per share expiring in May, 2016.



In March, 2012, the Company authorized
the issuance of 593,750 shares of its Series A Convertible Preferred stock $.001 par value with a restrictive legend pursuant to
existing employment agreements.



In March, 2012, the Company authorized
the issuance of 250,000 shares of its $.001 par value common stock with a restrictive legend pursuant to existing employment agreements.



In February, 2012, the Scientific Advisory
Board (SAB) was granted warrants to purchase 60,000 shares of common stock at $1.09 per share expiring in February, 2016.



In August, 2011, the Scientific Advisory
Board (SAB) was granted warrants to purchase 60,000 shares of common stock at $1.41 per share expiring in February, 2015.



In November, 2011, the Scientific Advisory
Board (SAB) was granted warrants to purchase 60,000 shares of common stock at $.948 per share expiring in November, 2015.



For the year ended June 30, 2011, the Company's
Board of Directors authorized the issuance of 51,213 shares of the Company’s $0.001 par value common stock with a restrictive
legend, for services.



On February 4, 2011, the Company authorized
the issuance of 25,000 shares of its $.001 par value common stock with a restrictive legend for $25,000 upon the exercise of 25,000
warrants issued pursuant to a prior year private placement



In February, 2011, the Scientific Advisory
Board (SAB) was granted warrants to purchase 60,000 shares of common stock at $1.47 per share. These warrants, if not exercised,
will expire in February, 2015.



In May, 2011, the Scientific Advisory Board
(SAB) was granted warrants to purchase 60,000 shares of common stock at $1.632 per share. These warrants, if not exercised, will
expire in May, 2015.



On April 10, 2011, the Company authorized
the issuance of 10,000 shares of its $.001 par value common stock with a restrictive legend for $10,000 upon the exercise of 10,000
warrants issued pursuant to a prior year private placement.



In March, 2011, the Company authorized
the issuance of 250,000 shares of its $.001 par value common stock with a restrictive legend pursuant to existing employment agreements.



In March, 2011, the Company authorized
the issuance of 593,750 shares of its Series A $.001 par value Convertible Preferred stock with a restrictive legend pursuant to
existing employment.



On December 10, 2010, the Company authorized
the issuance of 25,000 shares of its $.001 par value common stock with a restrictive legend for $25,000 upon the exercise of 25,000
warrants issued pursuant to a prior year private placement.

In November, 2010, the Scientific Advisory
Board (SAB) was granted warrants to purchase 60,000 shares of common stock at $1.81 per share. These warrants, if not exercised,
will expire in October, 2014



On November 1, 2010, the Company authorized
the issuance of 30,000 shares of its Series A $.001 par value Convertible Preferred Stock with a restrictive legend pursuant to
a consulting.



In August, 2010, the Scientific Advisory
Board (SAB) was granted warrants to purchase 60,000 shares of common stock at $1.476 per share. These warrants, if not exercised,
will expire in August, 2014

For the year ended June 30, 2010, the Company's
Board of Directors authorized the issuance of 150,822 shares of the Company’s .001 par value common stock with a restrictive
legend, for services.



On June 9, 2010, 195,000 warrants were
converted into the Company’s .001 par value common stock. The Company received $195,000 upon this conversion.



In May, 2010, the SAB was granted warrants
to purchase 50,000 shares of the Company’s $.001 par value common stock at $1.38 per share. These warrants, if not exercised,
will expire in May, 2014.



In April, 2010, the Company’s Board
of Directors authorized the issuance of 39,625 shares of the Company’s $.001 par value common stock with a restrictive legend
in payment of a current account payable for laboratory equipment in the amount of $31,700.



66







On March 3, 2010, the Company issued 250,000
shares of .001 par value common stock and 593,750 shares of Series A to certain of its employees pursuant to the terms of certain
employment agreements.



In February, 2010, the SAB was granted
warrants to purchase 50,000 shares of the Company’s $.001 par value common stock at $1.272 per share. These warrants, if
not exercised, will expire in February 2014.



On February 15, 2010, the Company
approved an Additional License Agreement with TheraCour Pharma, Inc. (“TheraCour”). Pursuant to the exclusive
Additional License Agreement, the Company was granted exclusive licenses, in perpetuity, for technologies, developed by
TheraCour, for the development of drug candidates for the treatment of Dengue viruses, Ebola/Marburg viruses, Japanese
Encephalitis, viruses causing viral Conjunctivitis (a disease of the eye) and Ocular Herpes. As consideration for obtaining
these exclusive licenses, we agreed to pay a one time licensing fee equal to seven million shares of the Company’s
Series A Convertible Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred Stock  initially
voted and was convertible into shares of common stock, only upon sale or merger of the Company, or the sale of or license of
substantially all of the Company’s intellectual property, at the rate of four shares of common stock for each share of
Series A Preferred Stock. The Preferred Series A do not contain any rights to dividends; have no liquidation preference and
are not to be amended without the holders approval. On June 15, 2012, the holders agreed to an amendment of the Series A
Preferred Stock to reduce the conversion rate to 3.5 shares and to vote at 9 shares of common stock.



In November, 2009, the SAB was granted
warrants to purchase 50,000 shares of the Company’s .001 par value common stock at $1.06 per share. These warrants, if not
exercised, will expire in November 2013



In November, 2009, the Company’s
Board of Directors authorized the issuance of 32,500 shares of the Company’s restricted common stock in payment of a current
account payable for laboratory equipment in the amount of $25,200.



On November 10, 2009, 10,000 warrants were
converted into the Company’s .001 par value common stock. The Company received $1,430 upon this conversion.



On September 30, 2009, the Company accepted
subscriptions from certain accredited investors and warrant holders in the total aggregate amount of $3,217,400. In the Company’s
offering of Units comprised of shares of the Company’s $.001 par value common stock and warrants to purchase the Company’s
$.001 par value common stock, the Company accepted subscriptions for $1,337,500 for Units consisting of 2,675,000 shares and Warrants
to purchase an additional 1,337,500 shares. In the offering to its warrant holders, the Company raised an aggregate of $1,879,900
for 3,759,800 shares and warrants to purchase 3,759,800 shares. The Company paid $5,250 and issued 5,250 warrants as a Finder’s
Fee.



In August 2009, the Scientific Advisory
Board (SAB) was granted warrants to purchase 50,000 shares of the Company’s $.001 par value common stock at $1.10 per share.
These warrants, if not exercised, will expire in August 2013. The fair value of these warrants in the amount of $41,400 was recorded
as a consulting expense



All of the securities set forth above were
issued by the Company pursuant to Section 4(2) of the Securities Act of 1933, as amended, or the provisions of Rule 504 of Regulation
D promulgated under the Securities Act. All such shares issued contained a restrictive legend and the holders confirmed that they
were acquiring the shares for investment and without intent to distribute the shares. All of the purchasers were friends or business
associates of the Company’s management and all were experienced in making speculative investments, understood the risks associated
with investments, and could afford a loss of the entire investment. The Company has never utilized an underwriter for an offering
of its securities. Some of the investors were introduced to the Company by certain Agents that we call Finders. The Company had
individual agreements with the Finders regarding fees payable to them. Fees paid to these agents were $- 0- in the years ended
June 30, 2011 and June 30, 2010, respectively.



USE OF PROCEEDS FROM SALES OF REGISTERED
SECURITIES



In March, 2010, the Company filed a Form
S-3 Shelf Registration with the Securities and Exchange Commission (SEC) for the sale from time to time of up to $40 million of
the Company’s securities. The registration statement became effective on April 29, 2010.



On May 11, 2010, the Company entered into
a Securities Purchase Agreement (the “Agreement”) with Seaside 88, LP, a Florida limited partnership (“Seaside”),
relating to the offering and sale of 500,000 shares of the Company’s $.001 par value Series B Convertible Preferred Stock,
(“Series B”) at the purchase price of $10.00 per share (the “Purchase Price”). Under the terms of the agreement,
60,000 shares of Series B shall automatically convert into shares of the Company’s .001 par value common stock at the closing
and every fourteenth day thereafter at a conversion factor equal to the Purchase Price divided by the lower of (i) of the daily
volume weighted average of actual trading prices of the Company’s .001 par value common stock on the trading market (the
“VWAP”) for the ten consecutive trading days immediately prior to a conversion date multiplied by 0.85 or (ii) the
VWAP for the trading day immediately prior to a conversion date multiplied by 0.88. The Agreement also provided that a 10% per
annum dividend would accrue on all outstanding shares of Series B (the “Dividend”), to be paid on each conversion date
either in cash or the Company’s .001 par value common stock. If the Company chooses to pay the said dividends in stock, each
share of the Company’s .001 par value common stock would be valued at 85% of the 10-day VWAP.



67







On May 12, 2010, the Company issued 500,000
shares of its Series B in accord with the aforementioned agreement. The Company received $5,000,000 in consideration for the Series
B. The Company recorded a placement agent fee of $400,000 and legal fees of $50,000 in association with this transaction.



On September 16, 2010, Seaside and the
Company executed a Letter Agreement and Amendment (the “Letter Agreement”) regarding the purchase and sale of an additional
500,000 shares (the “Additional Shares”) of the Company’s Series B Convertible Preferred Stock (the “Series
B Preferred Stock”) at the purchase price of $10.00 per share as originally contemplated by that certain Securities Purchase
Agreement, dated May 11, 2010, between the parties (the “Agreement”).



Pursuant to the Letter Agreement, the parties
agreed to amend certain provisions of the Agreement so that the Additional Shares could be purchased in two (2) closings, at each
of which the Company will issue and sell to Seaside 250,000 shares of Series B Preferred Stock. The parties also agreed that the
second closing of the Additional Shares would occur ninety (90) days subsequent to the first closing of the Additional Shares (the
“First Follow-on Closing Date”). The Company also agreed to decrease the number of shares of Series B Preferred Stock
that automatically convert from 60,000 shares to 40,000 shares, commencing on the First Follow-on Closing Date and the date of
the subsequent closing, and every 14th day thereafter, subject to certain limitations and qualifications, into shares of the Company’s
Common Stock. Each share of Series B Preferred Stock converts into shares of Common Stock at a conversion factor equal to the Purchase
Price divided by the lower of (i) of the daily volume weighted average of actual trading prices of the Common Stock on the trading
market (the “VWAP”) for the ten consecutive trading days immediately prior to a conversion date multiplied by 0.85
or (ii) the VWAP for the trading day immediately prior to a conversion date multiplied by 0.88.



On September 21, 2010, the Company issued
250,000 shares of its Series B in accordance with the aforementioned agreement. The Company received $2,500,000 in consideration
for the Series B. The Company recorded a placement agent fee of $195,000 and legal fees of $10,000 in association with this transaction.



On December 21, 2010, the Company issued
250,000 shares of its Series B in accordance with the aforementioned Letter Agreement and Securities Purchase Agreement. The Company
received $2,500,000 in consideration for the Series B. The Company recorded a placement agent fee of $200,000 in association with
this transaction.



On April 18, 2011, the Company entered
into a second Securities Purchase Agreement (the “Second Agreement”) with Seaside, relating to the offering and sale
of 500,000 shares of the Company’s .001 par value Series B at the purchase price of $10.00 per share (the “Purchase
Price”). Under the terms of the agreement, 40,000 shares of Series B shall automatically convert into shares of the Company’s
..001 par value common stock at the closing and every fourteenth day thereafter at a conversion factor equal to the Purchase Price
divided by the lower of (i) of the daily volume weighted average of actual trading prices of the Company’s .001 par value
common stock on the trading market (the “VWAP”) for the ten consecutive trading days immediately prior to a conversion
date multiplied by 0.85 or (ii) the VWAP for the trading day immediately prior to a conversion date multiplied by 0.88. The Agreement
also provided that a 10% per annum dividend would accrue on all outstanding shares of Series B (the “Dividend”), to
be paid on each conversion date either in cash or the Company’s .001 par value common stock. If the Company chooses to pay
the said dividends in stock, each share of the Company’s .001 par value common stock would be valued at 85% of the 10-day
VWAP.



On April 18, 2011, the Company issued 250,000
shares of its Series B in accord with the aforementioned Second Agreement. The Company received $2,500,000 in consideration for
the Series B. The Company recorded a placement agent fee of $150,000 and legal fees of $10,000 in association with this transaction.



On November 2, 2011, the Company entered
into a Securities Purchase Agreement (the “Agreement”) with Seaside, relating to the offering and sale (the “Offering”)
of up to 500,000 shares of the Company’s Series B Convertible Preferred Stock, par value $0.001 per share (the “Series
B Preferred Stock”) at the purchase price of $10.00 per share (the “Purchase Price”). On November 2, 2011, Seaside
purchased an initial 250,000 shares of the Series B Preferred Stock for an aggregate purchase price of $2,500,000 (the “Initial
Closing”). Seaside purchased the remaining 250,000 shares of the Series B Preferred Stock for the purchase price of $2,500,000
(the “Subsequent Closing”). 40,000 shares of the Series B Preferred Stock automatically converted into shares of the
Company’s common stock, par value $0.001 per share (the “Common Stock”) at each of the Initial Closing and the
Subsequent Closing and every fourteenth day thereafter at a conversion price equal to the Purchase Price divided by the lower of
(i) the daily volume weighted average of actual trading prices of the Common Stock on the trading market (the “VWAP”)
for the ten consecutive trading days immediately prior to a conversion date multiplied by 0.85 and (ii) the VWAP for the trading
day immediately prior to a conversion date multiplied by 0.88. In the event that the conversion price does not equal or exceed
$0.20 (the “Floor”), as calculated with respect to any subsequent conversion date, then such conversion will not occur
and the shares not converted on that date will be added to the conversion on the following conversion date.



68







The Agreement contains representations
and warranties and covenants for each party, which must be true and have been performed at each closing. Additionally, the Company
has agreed to indemnify and hold harmless Seaside against certain liabilities in connection with the issuance and sale of the Series
B Preferred Stock under the Agreement.



69







The conversion price per share for the
Initial Closing was $.781575, and the Company raised gross proceeds from the offering of $2,500,000, before estimated offering
expenses of approximately $200,000 which includes placement agent and attorneys’ fees. The conversion price per share for
the Subsequent Closing was $.55777 and the Company raised gross proceeds from the offering of $2,500,000, before estimated offering
expenses of approximately $200,000 which includes placement agent and attorneys’ fees.



On June 28, 2012, the Company entered into
an additional Securities Purchase Agreement (the “Agreement”) with Seaside, relating to the offering and sale (the
“Offering”) of up to 5,000 shares of the Company’s Series C Convertible Preferred Stock, par value $0.001 per
share (the “Series C Preferred Stock”) at the purchase price of $1,000.00 per share (the “Purchase Price”).
On June 28, 2012, Seaside purchased an initial 2,500 shares of the Series C Preferred Stock for an aggregate purchase price of
$2,500,000 (the “Initial Closing”). Following the Initial Closing, Seaside will purchase the remaining 2,500 shares
of the Series C Preferred Stock for the purchase price of $2,500,000 (the “Subsequent Closing”).



The conversion price per share for the
Initial Closing of the Series C Preferred Stock was $.49181 and the Company raised gross proceeds from the offering of $2,500,000
before estimated offering expenses of approximately $200,000, which includes placement agents and attorneys’ fees.



The Offerings were made pursuant to the
Company’s shelf registration statement on Form S-3 (File No. 333-165221), which was declared effective by the Securities
and Exchange Commission on April 29, 2010. The Company, pursuant to Rule 424(b) under the Securities Act of 1933, filed with the
Securities and Exchange Commission a prospectus supplement relating to the Offering.



In connection with the Offering, pursuant
to a Placement Agency Agreement entered into by and between Midtown and the Company, as amended by an Underwriter Agent Agreement
Amendment No. 1, dated March 28, 2011 (as amended, the “Placement Agency Agreement”), the Company paid Midtown a cash
fee representing 6% of the gross purchase price paid by Seaside for the Series B Preferred Stock.



During the three months ended June 30,
2012, Seaside converted the following amounts of Series B Preferred Stock into the Company’s Common Stock:



|Date of Conversion |  |  | Number of 
Shares of 
Series B
Converted |        |  | Conversion
 Price |  |        | Number of 
Shares of .001 
par value 
Common 
Stock Issued 
Pursuant to
 Conversion |  |  | Dividend 
Conversion 
Price |  |  | Dividend
 Shares 
Issued |        |  | Total Shares of 
..001 par value
 Common 
Stock Issued to 
Seaside | 
|------------------ |  |  | ---------------------------------------- | ------ |  | ----------------- |  | ------ | ----------------------------------------------------------------------------------- |  |  | --------------------------- |  |  | ------------------------ | ------ |  | ------------------------------------------------------------------ | 
|04/11/2012         |  |  |                                          | 40,000 |  |                   |  | .60469 |                                                                                     |  |  | 661,496                     |  |  |                          | .60469 |  |                                                                    | 
|04/18/2012         |  |  |                                          | 40,000 |  |                   |  | .50926 |                                                                                     |  |  | 785,453                     |  |  |                          | .53593 |  |                                                                    | 
|05/02/2012         |  |  |                                          | 40,000 |  |                   |  | .50415 |                                                                                     |  |  | 198,354                     |  |  |                          | .50873 |  |                                                                    | 
|                   |  |  |                                          |        |  |                   |  |        |                                                                                     |  |  |                             |  |  |                          |        |  |                                                                    | 



During the three months ended June 30,
2012, Seaside converted the following amounts of Series C Preferred Stock into the Company’s Common Stock:



|Date of Conversion |  |  | Number of
Shares of
Series C
Converted |     |  | Conversion
Price |  |        | Number of
Shares of .001
par value
Common
Stock Issued
Pursuant to
Conversion |  |  | Dividend
Conversion
Price |  |  | Dividend
Shares
Issued |   |  | Total Shares
of .001 par
value
Common
Stock Issued
to Seaside | 
|------------------ |  |  | -------------------------------------- | --- |  | ---------------- |  | ------ | ----------------------------------------------------------------------------- |  |  | ------------------------- |  |  | ---------------------- | - |  | ------------------------------------------------------------- | 
|06/28/2012         |  |  |                                        | 147 |  |                  |  | .49181 |                                                                               |  |  | 298,472                   |  |  |                        | - |  |                                                               | 
|                   |  |  |                                        |     |  |                  |  |        |                                                                               |  |  |                           |  |  |                        |   |  |                                                               | 

Thus far, the Company has used the net
proceeds of the offering for working capital. See also Item 7 Subsequent Events .



70







ITEM 6: SELECTED FINANCIAL
DATA



The selected consolidated financial data
presented below are for each fiscal year in the five-year period ended June 30, 2012. This data is derived from, and qualified
by reference to, our audited financial statements and notes thereto appearing elsewhere in this Form 10-K.



Statements of Operations Data:



|                                          |  | Years Ended June 30, |            
|----------------------------------------- |  | -------------------- | -----------
|                                          |  | 2012                 |            
|(in thousands, except per share amounts)  |  |                      |            
|Revenues:                                 |  |                      | _          
|                                          |  |                      |            
|                                          |  |                      |            
|                                          |  |                      |            
|                                          |  |                      |            
|Operating expenses:                       |  |                      |            
|                                          |  |                      |            
|Research and development                  |  |                      | 4,234,138  
|                                          |  |                      |            
|General and administrative                |  |                      | 1,854,719  
|                                          |  |                      |            
|Total operating expenses                  |  |                      | 6,088,857  
|                                          |  |                      |            
|Operating income( Loss )                  |  |                      | (6,088,857 
|                                          |  |                      |            
|Other income (expense):                   |  |                      |            
|Interest income                           |  |                      | 53,895     
|                                          |  |                      |            
|Change in Fair market value of securities |  |                      | (172,245   
|                                          |  |                      |            
|Total other expense, net                  |  |                      | (118,350   
|Loss before income tax expense (benefit)  |  |                      | (6,207,207 
|Income tax expense (benefit)              |  |                      | -          
|Net loss                                  |  | $                    | (6,207,207 
|                                          |  |                      |            
|Net loss per share (1)                    |  | $                    | (0.4       
|                                          |  |                      |            
|Weighted average shares outstanding (2)   |  |                      | 149,672,185










|(1) | See note 2 to the financial statements for information concerning the computation of net loss per share.
|--- | --------------------------------------------------------------------------------------------------------





71







Balance Sheets Data:





|                          |  | Years Ended June 30, |            
|------------------------- |  | -------------------- | -----------
|                          |  | 2012                 |            
|(in thousands)            |  |                      |            
|                          |  |                      |            
|Cash and Cash Equivalents |  | $                    | 14,274,985 
|Working capital           |  |                      | 314,174    
|Total assets              |  |                      | 15,629,808 
|                          |  |                      |            
|Long term liabilities     |  |                      | -          
|Accumulated deficit       |  |                      | (29,424,116
|Stockholders' equity      |  |                      | 13,850,191 





ITEM 7: MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion should be read
in conjunction with the information contained in the consolidated financial statements of the Company and the notes thereto appearing
elsewhere herein and in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations
set forth in (1) the Company's Annual Report on Form 10-K for the year ended June 30, 2012. Readers should carefully review the
risk factors disclosed in this Form 10-K and other documents filed by the Company with the SEC.



As used in this report, the terms "Company",
"we", "our", "us" and "NNVC" refer to Nanoviricides, Inc., a Nevada corporation.



PRELIMINARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS

This Annual Report contains forward-looking
statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions
or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend,"
"plan," "will," "we believe," "NNVC believes," "management believes" and similar
language. The forward-looking statements are based on the current expectations of NNVC and are subject to certain risks, uncertainties
and assumptions, including those set forth in the discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in this report. Actual results may differ materially from results anticipated in these forward-looking
statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update
them.



Investors are also advised to refer to
the information in our previous filings with the Securities and Exchange Commission (SEC), especially on Forms 10-K, 10-Q and 8-K,
in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic
results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors
to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.



Management’s Plan of Operation



The Company’s drug development business
model was formed in May 2005 with a license to the patents and intellectual property held by TheraCour Pharma, Inc., that enabled
creation of drugs engineered specifically to combat viral diseases in humans. This exclusive license from TheraCour Pharma serves
as a foundation for our intellectual property. The Company was granted a worldwide exclusive perpetual license to this technology
for several drugs with specific targeting mechanisms in perpetuity for the treatment of the following human viral diseases: Human
Immunodeficiency Virus (HIV/AIDS), Hepatitis B Virus (HBV), Hepatitis C Virus (HCV), Rabies, Herpes Simplex Virus (HSV), Influenza
and Asian Bird Flu Virus. The Company has entered into an Additional License Agreement with TheraCour granting the Company the
exclusive licenses in perpetuity for technologies developed by TheraCour for the additional virus types for Dengue viruses, Japanese
Encephalitis virus, West Nile Virus, Viruses causing viral Conjunctivitis (a disease of the eye) and Ocular Herpes, and Ebola/Marburg
viruses. The Company may want to add further virus types to its drug pipeline. The Company would then need to negotiate with TheraCour
an amendment to the Licensing Agreement to include those of such additional viruses that the Company determines it wants to follow
for further development. We are seeking to add to our existing portfolio of products through our internal discovery pre-clinical
development programs and through an in-licensing strategy.



72









The Company intends to perform the regulatory
filings and own all the regulatory licenses for the drugs it is currently developing. The Company will develop these drugs in part
via subcontracts to TheraCour Pharma, Inc., the exclusive source for these nanomaterials. The Company may manufacture these drugs
itself, or under subcontract arrangements with external manufacturers that carry the appropriate regulatory licenses and have appropriate
capabilities. The Company intends to distribute these drugs via subcontracts with distributor companies or in partnership arrangements.
The Company plans to market these drugs either on its own or in conjunction with marketing partners. The Company also plans to
actively pursue co-development, as well as other licensing agreements with other Pharmaceutical companies. Such agreements may
entail up-front payments, milestone payments, royalties, and/or cost sharing, profit sharing and many other instruments that may
bring early revenues to the Company. Such licensing and/or co-development agreements may shape the manufacturing and development
options that the company may pursue. The Company has received significant interest from certain pharmaceutical companies for potential
licensing or co-development of some of our drug candidates. However, none of these distributor or co-development agreements is
in place at the current time.



To date, we have engaged in organizational
activities; developing and sourcing compounds and preparing nano-materials; and experimentation involving preclinical studies using
cell cultures and animals. We have generated funding through the issuances of debt and the sales of securities under our shelf
registration and the private placement of common stock ( See, Item 5). The Company does not currently have any long term
debt. We have not generated any revenues and we do not expect to generate revenues in the near future. We may not be successful
in developing our drugs and start selling our products when planned, or we may not become profitable in the future. We have incurred
net losses in each fiscal period since inception of our operations.



Collaborative Agreements and Contracts



On December 23, 2005, the Company signed
a Memorandum of Understanding (MOU) with the National Institute of Hygiene and Epidemiology in Hanoi (NIHE), a unit of the Vietnamese
Government’s Ministry of Health. This Memorandum of Understanding calls for cooperation in the development and testing of
certain nanoviricides. The parties agreed that NanoViricides will retain all intellectual property rights with respect to any resulting
product and that the initial target would be the development of drugs against H5N1 (avian influenza). NIHE thereafter requested
that we develop a drug for rabies, a request to which we agreed. The initial phase of this agreement called first for laboratory
testing, followed by animal testing of several drug candidates developed by the Company. Preliminary laboratory testing of FluCideTM-I,
AviFluCide-ITM and AviFluCide-HPTM were successfully performed at the laboratories of the National Institute of Hygiene and Epidemiology
in Hanoi (NIHE), against both clade 1 and clade 2 of H5N1 virus isolated in Vietnam. Successful animal testing of RabiCide-ITM,
the company’s rabies drug, was performed in Vietnam during the first half of 2007, and reproducibly repeated in 2008. Rabies
testing can safely be done at their BSL2 facility. The H5N1 animal testing requires a BSL3 (biological safety laboratory level
3) laboratory. NIHE has acquired a BSL3 animal testing capacity during 2008.



We have finalized execution of a Materials
Cooperative Research and Development Agreement (M-CRADA) with the Centers for Disease Control and Prevention (CDC), Atlanta, GA
in July, 2008. This agreement was initiated based on our success against Rabies in the animal studies conducted at NIHE Vietnam.
Preliminary animal studies against Rabies were expected to start in the last quarter of calendar year 2009 or first quarter of
calendar year 2010. The Company has lowered the priority of this program during the recent economic crisis in order to use our
resources most effectively. Subsequent to the agreement execution, the Company has supplied certain materials to CDC for testing.
This testing, if successful, is expected to expand to involve potential use of nanoviricides as (1) a post- infection therapeutic
drug against rabies, possibly in conjunction with a rabies vaccine, and (2) a post-exposure prophylactic drug against rabies, to
replace costly human or monoclonal antibodies, possibly in conjunction with a rabies vaccine. To date, there is no effective post-infection
therapeutic against rabies. Post-exposure prophylaxis market has been estimated to be as much $300M to $500M worldwide.



We have finalized a CRADA with Walter Reed
Army Institutes of Research (WRAIR) to develop collaboratively antiviral agents against all four types of dengue viruses in April,
2007. Preliminary work has commenced under this CRADA. This CRADA is expected to be renegotiated due to changes in funding requirements
at WRAIR. The Company has not renewed this agreement.



We have finalized a Materials Transfer
Agreement (MTA) with the United States Army Institute of Infectious Diseases (USAMRIID) to develop antiviral agents against Ebola,
Marburg and other hemorrhagic viruses in October 2007. Preliminary studies began in February, 2008. Certain nanoviricides candidates
were found to be highly successful against Ebola virus in pre-clinical cell culture studies. Ebola virus is known to produce, in
vivo, a soluble decoy protein that is a portion of its surface glycoprotein. If the nanoviricides that were successful in the in
vitro studies bind to the decoy protein portion of the Ebola virus envelope, then we would expect that the nanoviricides would
be neutralized in vivo by the decoy protein. We are therefore developing novel ligands that would potentially bind to the Ebola
virus glycoprotein portion that is known to be not a part of the decoy protein. The MTA was extended for another year in October,
2009 to continue these studies. The Company has lowered the priority of this program during the recent economic crisis in order
to use our resources most effectively.



73









We have finalized an agreement with a Medical
Institute to perform animal studies of our eye drop formulation of nanoviricides against viral EKC (viral Epidemic Kerato-conjunctivitis)
in March, 2008. The first EKC-CideTM-I animal study was completed in June, 2008. Biochemical testing of the samples is continuing.
The study indicated that the best nanoviricide drug candidate showed excellent clearance of clinical signs of the disease, viz.
redness of the eye as well as sticky exudates, in a short time after treatment. We have received significant interest from certain
Pharmaceutical companies in this drug candidate.



On May 6, 2009, the Company entered into
a Clinical Study Agreement with THEVAC, LLC, a company affiliated with the Emerging Technology Center of the Louisiana State University.
At present, TheVac is performing biological testing of anti-herpes nanoviricides. TheVac is conducting studies on the effect of
anti-herpes nanoviricide drug candidates against herpes cold sores and genital herpes in cell culture models. In addition, TheVac
is also conducting studies on the effect of anti-herpes nanoviricides drug candidates in a mouse model of herpes keratitis. Professor
Gus Kousoulas and his team at Louisiana State University have validated and published on this animal model extensively in peer-reviewed
scientific journals.



On May 13, 2010, the Company announced
that it had entered into a Research and Development Agreement with Professor Ken Rosenthal Lab at NEOUCOM (now called NEOMED).
Professor Rosenthal has developed in vitro or cell culture based tests for identifying the effectiveness of antiviral agents against
HSV. He has also developed a skin lesion mouse model for HSV infection. Dr. Rosenthal has been involved in the evaluation of HSV
vaccines as well as anti-HSV drugs.  His laboratory has developed an improved mouse model of skin-infection with HSV
to follow the disease progression. This model has been shown to provide highly uniform and reproducible results. A uniform disease
pattern including onset of lesions and further progression to zosteriform lesions is observed in all animals in this model. This
uniformity makes it an ideal model for comparative testing of various drug candidates. Dr. Rosenthal is a professor of microbiology,
immunology and biochemistry at Northeastern Ohio Universities Colleges of Medicine and Pharmacy (NEOUCOM). He is a leading researcher
in the field of herpes viruses. His research interests encompass several aspects of how herpes simplex virus (HSV) interacts with
the host to cause disease. His research has addressed how HSV infects skin cells and examined viral properties that facilitate
its virulence and ability to cause encephalitis. In addition, Dr. Rosenthal has also been studying a viral protein that makes the
HSV more virulent by helping the virus to take over the cellular machinery to make copies of its various parts, assemble these
parts together into virus particles and release the virus to infect other cells. He is also researching how the human host immune
response works against HSV for the development of protective and therapeutic vaccines.



On August 16, 2010, the Company reported
that its anti-Herpes drug candidates demonstrated significant efficacy in the recently completed cell culture studies in Dr. Rosenthal
Lab at NEOUCOM.  Several of the anti-Herpes nanoviricides® demonstrated a dose-dependent maximal inhibition of Herpes
virus infectivity in a cell culture model. Almost complete inhibition of the virus production was observed at clinically usable
concentrations. These studies employed the H129 strain of herpes simplex virus type 1 (HSV-1).  H129 is an encephalitic
strain that closely resembles a clinical isolate; it is known to be more virulent than classic HSV-1 laboratory strains. The H129
strain will be used in subsequent animal testing of nanoviricides.



On May 17, 2010, the Company announced
that it had signed a research and development agreement with the University of California, San Francisco (UCSF), for the testing
of its anti-HIV drug candidates.  Cheryl Stoddart, PhD, Assistant Professor in the UCSF Division of Experimental Medicine,
will be the Principal Investigator.  Dr. Stoddart is a recognized investigator in preclinical studies of anti-HIV compounds
using the standard SCID-hu Thy/Liv humanized mouse model. In particular, she is well known for her work in validating that this
mouse model is capable of accurately predicting clinical antiviral efficacy in humans.  The National Institute of Allergy
and Infectious Diseases (NIAID), a division of the National Institutes of Health (NIH), has recognized UCSF as an important site
for anti-HIV drug screening studies.  Dr. Stoddart’s in-vivo testing of anti-HIV nanoviricides will complement
the Company’s previously announced in-vitro anti-HIV testing that is ongoing at the Southern Research Institute in Frederick,
MD. Their expertise is in the testing of oral anti-HIV drugs. They need to implement successfully, protocols for injectable
anti-HIV drug testing.  Currently the Company's anti-HIV injectables animal testing is performed by KARD Scientific.



On February 16, 2010, the Company announced
that it had signed a research and development agreement with Dr. Eva Harris’s laboratory at the University of California,
Berkeley (UC Berkeley). Under this agreement, Dr. Harris and coworkers will evaluate the effectiveness of nanoviricides® drug
candidates against various dengue viruses. Cell culture models as well as in vivo animal studies will be employed for testing the
drug candidates. Dr. Eva Harris is a Professor of Infectious Diseases at UC Berkeley. She is a leading researcher in the field
of dengue. Her group has developed a unique animal model for dengue virus infection and disease  that effectively emulates
the pathology seen in humans. In particular, the critical problem of dengue virus infection, called “Antibody-Dependent Enhancement”
(ADE), is reproduced in this animal model. When a person who was previously infected with one serotype of dengue virus is later
infected by a different serotype, the antibodies produced by the immune system can lead to increased severity of the second dengue
infection, instead of controlling it. ADE thus can lead to severe dengue disease or dengue hemorrhagic fever (DHF).



Subsequent Event.



Management performed an evaluation of the
Company’s activity through October 12, 2012, the date these financials were issued to determine if they must be reported.
The Management of the Company determined that the following reportable subsequent event should be disclosed.



74







On July 23, 2012 the Company announced
that it had retained Australian Biologics Pty. Ltd, a regulatory affairs consulting firm, to coordinate the regulatory review and
approval to conduct the first human trials in Australia for Flucide TM , the Company’s broad spectrum anti-influenza
drug. Australian Biologics Pty. Ltd will also facilitate clinical trial site selection and development of clinical trial agreements.



The Company’s Drug Pipeline



Management believes that it has achieved
significant milestones in the development of a number of antiviral nanoviricide drug candidates. We now have high efficacy lead
drug candidates against five commercially important diseases, namely, (1) All Influenza viruses (FluCide-I), (2) HIV (HIVCide-I),
(3) Nanoviricide Eye Drops for Viral Infections of the External Eye, (4) a nanoviricide against Herpes “Cold Sores”
and genital herpes, and (5) Dengue viruses. Further, the Company has identified highly active nanoviricide drug candidates against
Ebola/Marburg, and against Rabies. In addition, the Company has also established the technology feasibility for (a) broad-spectrum
nanoviricides, and (b) Just-in-Time ADIF(TM) technology; both of which are well suited for stockpiling to defend against known
as well as novel infectious diseases.



The Company has not yet performed detailed
safety profile studies to be included in a “Tox Package” for submission to the FDA for any of our drug candidates.
Our studies regarding safety of the various nanoviricide drug candidates to date have been preliminary and of a limited nature.



Management’s beliefs are based on
results of pre-clinical cell culture studies and in vivo animal studies using mice.



The Company thus has a strong and growing
drug pipeline to take us several years into the future. The Company already has technologies in development that promise to yield
even better drugs against various diseases as the drugs we are developing now approach their product end of lifecycle.



It should be noted that all of our studies
to date were preliminary. Thus, the evidence we have developed is indicative, but not considered confirmative, of the capabilities
of the nanoviricides technology's potential. With the success of these preliminary studies, the Company has decided to perform
further pre-clinical studies that validate safety and efficacy of its materials and its various anti-viral drugs. Management intends
to use capital and debt financing to enable the completion of these goals.



The Company continued its organizational
efforts and has signed or is in the process of obtaining several new agreements and contracts that are expected to have a significant
positive impact for us in the near future. In addition, the Company has improved its anti-influenza drug candidates further. The
Company has now declared a clinical candidate against influenza. The Company anticipates that this single drug will be effective
against all influenza viruses. We plan on conducting testing of this nanoviricide against a number of different influenza virus
strains in the very near future. In addition, the Company has further optimized the ligands for use in its anti-HIV drug program,
and continues to optimize the resulting nanoviricides under the HIVCide program. Last year, the Company also added two new drug
candidates to its pipeline (HerpeCide and DengueCide). Thus, despite the re-prioritization due to financial constraints and worldwide
economic conditions, the Company has made a significant level of progress and has achieved significant accomplishments this year.



Requirement for Additional Capital



As of June 30, 2012, we have a cash and
cash equivalent balance of $14,274,985 which combined with the $2,500,000 which will be obtained through the follow on sale of
the Company’s convertible preferred Series C stock, after the close of the Company’s year-end, will be sufficient to
fund our currently budgeted operations for the next twenty four months at the Company’s current rate of expenditures.



We estimate that we will need approximately
an additional $10M to $15M over the next 24 months for further development of our drug pipeline. These additional funds, if raised,
will enable us to perform Toxicology Package Studies and additional efficacy studies necessary to prepare the full dataset required
for filing our first Investigational New Drug Application (“IND”) with the US FDA on one of our drug candidates. The
additional funds will also be needed to pay additional personnel, increased subcontract costs related to the expansion and further
development of our drug pipeline, and for additional capital and operational expenditures required to file our first IND .



Further, we anticipate incurring additional
capital costs in the upcoming eighteen months to construct or obtain facilities to support an initial new drug application filing
with the FDA in accordance with our business plans. The Company has arranged for enabling cGMP production of its nanoviricides
for the upcoming clinical studies without incurring any capital costs. A separate privately held company, Inno-Haven, LLC, raised
funds privately to acquire a building in Shelton, CT. Inno-Haven intends to perform improvements and enable modern laboratory facilities
and kg-scale pilot cGMP facility in this space.



We are currently evaluating several vehicles
for raising these additional funds.



75







Assuming that we are successful in raising
this additional financing, we anticipate that we will incur the following additional expenses over the next 24 months.



1. Research and Development of $5,000,000:
Planned costs for in-vivo and in-vitro studies for pan-influenza FluCide, Eye nanoviricide, HIVCide, HerpeCide, Dengue, and Ebola/Marburg
and Rabies programs.



2. Corporate overhead of $1,250,000: This
amount includes budgeted office salaries, legal, accounting, investor relations, public relations, and other costs expected to
be incurred by being a public reporting company.



3. Capital costs of $1,500,000: This is
the estimated cost for equipment and laboratory improvements..



4. Staffing costs of $1,500,000: This is
the estimated cost of hiring additional scientific staff and consulting firms to assist with FDA compliance, material characterization,
pharmaco-kinetic, pharmaco-dynamic and toxicology studies, and other items related to FDA compliance, as required for development
of necessary data for filing an Investigational New Drug with the United States Food and Drug Administration.



In addition the Company anticipates estimated
capital costs of $5,000,000 for infrastructure and laboratory facilities for a scaled up research pilot production facility. The
Company anticipates that some of this infrastructure funding will be obtained through real estate and industrial loans and related
instruments.



In March, 2010, the Company filed a Form
S-3 Shelf Registration with the Securities and Exchange Commission (SEC) for the sale from time to time of up to $40 million of
the Company’s securities. The registration statement became effective on April 29, 2010. As of June 30, 2012 the Company
drew down $22,500,000 of the $40 million S-3 Shelf Registration. The Company anticipates further draw downs on this S-3 Shelf Registration
to fund its additional capital requirements and expenditures as required. . If we are unable to obtain additional financing, our
business plan will be significantly delayed.,



The Company has limited experience with
pharmaceutical drug development. Thus, our budget estimates are not based on experience, but rather based on advice given by our
associates and consultants. As such these budget estimates may not be accurate. In addition, the actual work to be performed is
not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional
work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget.
Such changes may also have an adverse impact on our projected timeline of drug development.



We believe that this coming year's work-plan
will lead us to obtain certain information about the safety and efficacy of some of the drugs under development in animal models.
If our studies are not successful, we will have to develop additional drug candidates and perform further studies. If our studies
are successful, then we expect to be able to undertake further studies in animal models to obtain necessary data regarding the
pharmaco-kinetic and pharmaco-dynamic profiles of our drug candidates. We believe these data will then enable us to file an Investigational
New Drug application, towards the goal of obtaining FDA approval for testing the drugs in human patients.



Most pharmaceutical companies expect 4
to 10 years of study to be required before a drug candidate reaches the IND stage. We believe that because we are working in the
infectious agents area, our studies will have objective response end points, and most of our studies will be of relatively short
durations. Our business plan is based on these assumptions. If we find that we have underestimated the time duration of our studies,
or we have to undertake additional studies, due to various reasons within or outside of our control, this will grossly and adversely
impact both our timelines and our financing requirements.



Management intends to use capital and debt
financing, as required, to fund the Company’s operations. There can be no assurance that the Company will be able to obtain
the additional capital resources necessary to fund its anticipated obligations for the next twelve months.



The Company is considered to be a development
stage company and will continue in the development stage until it generates revenues from the sales of its products or services.



Research and Development Costs



The Company does not maintain separate
accounting line items for each project in development. The Company maintains aggregate expense records for all research and development
conducted. Because at this time all of the Company’s projects share a common core material, the Company allocates expenses
across all projects at each period-end for purposes of providing accounting basis for each project. Project costs are allocated
based upon labor hours performed for each project.



The Company has signed several cooperative
research and development agreements with different agencies and institutions.



76







The Company expects to enter into additional
cooperative agreements with other governmental and non-governmental, academic, or commercial, agencies, institutions, and companies.
There can be no assurance that a final agreement may be achieved and that the Company will execute any of these agreements. However,
should any of these agreements materialize, the Company will implement a system to track these costs by project and account for
these projects as customer-sponsored activities and show these project costs separately.



The following table summarizes the primary
components of our research and development expenses as allocated, during the periods presented in this Form 10-K.



|Table 3: R&D Cost Allocations         |  |                           |          
|------------------------------------- |  | ------------------------- | ---------
|                                      |  | Year Ended
 June 30, 2012 |          
|All Influenzas: FluCideTM              |  | $                         | 1,100,000
|EKC-CideTM, other Eye Viral Infections |  |                           | 700,000  
|HIV-CideTM                             |  |                           | 600,000  
|Herpes infections                     |  |                           | 570,000  
|Dengue                                |  |                           | 267,000  
|Other (Ebola, and other projects)     |  |                           | 100,000  
|Unallocated stock compensation        |  |                           | 897,138  
|Total Research and development        |  | $                         | 4,234,138



Time Schedules, Milestones and Development
Costs



In the event that funding can be achieved,
we shall endeavor to achieve completion of the following events within the next twelve months:



The status of each of our major research
and development projects is as follows:



|Table 4: Drug Development Status                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Project                                                                                                                                                                 
|Current status                                                                                                                                                          
|                                                                                                                                                                        
|Nature, timing and estimated costs                                                                                                                                      
|Anticipated completion date                                                                                                                                             
|Risks and uncertainties associated with completing development on schedule, and the consequences to operations, financial position and liquidity if not completed timely



77







|Timing of commencement of expected material net cash inflows                                                                                                                     |  | If we complete our preclinical studies in the next 12~18 months, and also are able to produce clinical batches at the end of this period, we can expect Phase I and Phase II human clinical trials to be completed at the earliest by 2015. Revenues may occur as a result of licensing the drug to another pharmaceutical partner at this stage. After Phase III clinical trials completion, revenues are expected to occur after FDA approval and marketing of the drug. Revenues may occur earlier if Flucide is approved for use in other countries or if the BARDA authority determines that FluCide should be stockpiled in the USG CDC stockpile of drugs for defense against pandemic influenza. If we are successful in partnering the drug with another pharmaceutical Company, we may see revenues much earlier than FDA approval.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Project                                                                                                                                                                          |  | Drug Development of Nanoviricide Eye Drops for all Viral Infections
of the External Eye                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Current status                                                                                                                                                                   |  | This year, we developed new, broad-spectrum.
ligands that should be capable of enabling nanoviricide binding to herpes simplex viruses, while retaining the features that were
previously successful against adenoviral EKC in clinical studies. The resulting nanoviricides have been tested against HSV-1 in
cell cultures against two different strains of HSV-1, and a lead drug candidate has been identified. We are developing nanoviricide
eye drop solution that should be capable of resolving the broad range of viruses that can cause infections of the external eye
resulting in conjunctivitis or keratitis. Majority of these viruses are adenoviruses or HSV.                                                                                                                                                               
|                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Nature, timing and estimated costs                                                                                                                                               |  | The Company has budgeted approximately $300,000 for the material development, production and testing of this drug. These costs will be paid from our available cash balances. Should management determine the results to be satisfactory, we will need to obtain additional financing to perform material characterization, pharmaco-kinetic, pharmaco-dynamic and toxicology studies, which we have presently budgeted at $1,500,000.                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Anticipated completion date                                                                                                                                                      |  | Not known                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Risks and uncertainties associated with completing development
        on schedule, and the consequences to operations, financial position and liquidity if not completed timely |  | The outcome of clinical testing cannot
be known at this time, and this poses substantial risk and uncertainty as to whether or when if ever, this drug will become marketable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Timing of commencement of expected material net cash inflows                                                                                                                     |  | It is not known or estimable when net cash inflows from this project will commence if ever, due to the uncertainties associated with the completion of the product, regulatory submissions, approvals and market purchases of this product.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



|Project                                                                                                                                                                  |  | Drug Development of HIVCideTM                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Current status                                                                                                                                                           |  | HIV-Cide  is currently in preclinical studies. It is designed to mimic the site at which all HIV gp120 bind to the CD4 receptor. It is therefore expected to work against all HIV-1 subtypes and strains. HIV-Cide has been successfully tested in SCID-huThy/Liv mouse model and was found to have very high efficacy, equal to that of >25X (2,500%) dosage level of the triple drug HAART combination therapy. In vitro studies against two different HIV-1 strains were very successful. The Company is planning additional in-vivo and in-vitro studies at various institutions and subcontractors during 2012-2013to further optimize the drug candidate.
|Nature, timing and estimated costs                                                                                                                                       |  | The Company has budgeted approximately $1,000,000 for the material development, production and testing of this drug. These costs will be paid from our available cash balances. Should management determine the results to be satisfactory, we will need to obtain additional financing to perform material characterization, pharmaco-kinetic, pharmaco-dynamic and toxicology studies, which we have presently budgeted at $7,000,000.                                                                                                                                                                                                                       
|Anticipated completion date                                                                                                                                              |  | Not known                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Risks and uncertainties associated with completing development on schedule, and the consequences to operations, financial position and liquidity if not completed timely |  | The outcome of clinical testing cannot be known at this time, and this poses substantial risk and uncertainty as to whether or when if ever, this drug will become marketable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Timing of commencement of expected material net cash inflows                                                                                                             |  | It is not known or estimable when net cash inflows from this project will commence if ever, due to the uncertainties associated with the completion of the product, regulatory submissions, approvals and market purchases of this product.                                                                                                                                                                                                                                                                                                                                                                                                                    



78







|Project                                                                                                                                                                  |  | Drug Development of HerpeCideTM for Oral and Genital Herpes ”Cold Sores, “Fever Blisters” and Herpetic Ulcers                                                                                                                                                                                                                                                                                                                          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Current status                                                                                                                                                           |  | HerpeCide  is currently in preclinical studies against oral and genital herpes virus infections. It is being developed as a skin cream and gel formulations, which may result in two separate drugs. The Company is planning additional in-vivo and in-vitro studies at various institutions and subcontractors during 2012-2013.                                                                                                     
|Nature, timing and estimated costs                                                                                                                                       |  | The Company has budgeted approximately $600,000 for the material development, production and testing of this drug. These costs will be paid from our available cash balances. Should management determine the results to be satisfactory, we will need to obtain additional financing to perform material characterization, pharmaco-kinetic, pharmaco-dynamic and toxicology studies, which we have presently budgeted at $2,000,000.
|Anticipated completion date                                                                                                                                              |  | Not known                                                                                                                                                                                                                                                                                                                                                                                                                             
|Risks and uncertainties associated with completing development on schedule, and the consequences to operations, financial position and liquidity if not completed timely |  | The outcome of clinical testing cannot be known at this time, and this poses substantial risk and uncertainty as to whether or when if ever, this drug will become marketable.                                                                                                                                                                                                                                                        
|Timing of commencement of expected material net cash inflows                                                                                                             |  | It is not known or estimable when net cash inflows from this project will commence if ever, due to the uncertainties associated with the completion of the product, regulatory submissions, approvals and market purchases of this product.                                                                                                                                                                                           



|Project                                                                                                                                                                  |  | Drug Development of DengueCide(TM)                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Current status                                                                                                                                                           |  | Anti-dengue nanoviricide drug candidates are currently
        in preclinical studies. These candidates are being designed to mimic the human cell binding sites common to all types of dengue
        viruses. The best nanoviricide resulted in a 50% survival of mice in a uniformly lethal animal protocol simulating the ADE effect.
        The Company is planning additional in-vivo and in-vitro
        studies at various institutions and subcontractors during 2012-2013.
|Nature, timing and estimated costs                                                                                                                                       |  | The Company has budgeted approximately $1,000,000 for the material development, production and testing of this drug. These costs will be paid from our available cash balances. Should management determine the results to be satisfactory, we will need to obtain additional financing to perform material characterization, pharmaco-kinetic, pharmaco-dynamic and toxicology studies, which we have presently budgeted at $3,000,000.                                              
|Anticipated completion date                                                                                                                                              |  | Not known                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Risks and uncertainties associated with completing development on schedule, and the consequences to operations, financial position and liquidity if not completed timely |  | The outcome of clinical testing cannot be known at this time, and this poses substantial risk and uncertainty as to whether or when if ever, this drug will become marketable.                                                                                                                                                                                                                                                                                                        
|Timing of commencement of expected material net cash inflows                                                                                                             |  | It is not known or estimable when net cash
inflows from this project will commence if ever, due to the uncertainties associated with the completion of the product, regulatory
submissions, approvals and market purchases of this product.                                                                                                                                                                                                                                           



Other drug candidates:



Nanoviricides against Rabies, Ebola/Marburg,
Hepatitis C Virus (HCV), and several other viral diseases are at various early stages of research and development and involve a
substantial amount of uncertainty as to the development of these drug candidates. At this time, very little resources have been
allocated to these drugs. However should the early studies of any of these drug candidates provide an indication of high efficacy,
the corresponding drug candidate will become a full-fledged drug development project and the Company will endeavor to seek additional
funding for the necessary drug development work.



79







The Company has limited experience with
pharmaceutical drug development. Thus, our budget estimates are not based on experience, but rather based on advice given by our
associates and consultants. As such these budget estimates may not be accurate. In addition, the actual work to be performed is
not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional
work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget.
Such changes may also have an adverse impact on our projected timeline of drug development.



The Company is currently engaged in a national
search for a manufacturing facility. The Company is in discussions with Inno-Haven, LLC, to develop a modern laboratory and cGMP
facility suitable for its research and manufacturing needs. The manufacturing portion of the facility needs to be designed and
built in compliance with FDA guidelines in order for the Company to produce experimental materials that can be used in Phase I
human clinical trials. . It is preferable to use the same quality of materials for pharmaco-kinetic, pharmaco-dynamic and toxicology
studies. These three sets of studies must be completed prior to the Company filing an Investigational New Drug (“IND”)
with the FDA to begin the human safety and efficacy trials (Phase I, II and III). The cGMP facility will eventually need to be
registered with the FDA and certified as a cGMP drug manufacturing facility for use of the manufactured drugs from this facility
in Phase III human clinical trials.



The work-plan we have developed for the
next twelve months is expected to enable us to file an investigational new drug application in our 2013-2014 fiscal year at the
earliest, subject to availability of necessary levels of research and development funds. Enabling the cGMP facility has been the
major issue for us in the past in our progress towards regulatory filings. We believe that this issue will now be adequately addressed
in our 2012-2013 fiscal year, with a kg-scale pilot cGMP like facility becoming available. This work-plan is expected to reduce
certain risks of drug development. We believe that this coming year's work-plan will lead us to obtain certain information about
the safety and efficacy of some of the drugs under development in animal models. If our studies are not successful, we will have
to develop additional drug candidates and perform further studies. If our studies are successful, then we expect to be able to
undertake further studies in animal models to obtain necessary data regarding the pharmaco-kinetic and pharmaco-dynamic profiles
of our drug candidates. We believe these data will then enable us to file an Investigational New Drug (“IND”) application,
towards the goal of obtaining FDA approval for testing the drugs in human patients.



Most pharmaceutical companies expect 4
to 10 years of study to be needed before a drug candidate reaches the IND stage. We believe that because we are working in the
infectious agents area, our studies will have objective response end points, and further, studies on acute viral infectious diseases
are expected to be of relatively short durations. Our business plan is based on these assumptions. If we find that we have underestimated
the time duration of our studies, or we have to undertake additional studies, due to various reasons within or outside of our control,
this will grossly and adversely impact both our timelines and our financing needs.



Management intends to use capital and debt
financing, as required, to fund the Company’s operations. Management intends to pursue non-diluting funding sources such
as government grants and contracts as well as licensing agreements with other pharmaceutical companies. There can be no assurance
that the Company will be able to obtain the additional capital resources necessary to fund its anticipated obligations for the
next twelve months.



The Company is considered to be a development
stage company and will continue in the development stage until generating revenues from the sales of its products or services.



Results of Operations



The Company is a development-stage biopharmaceutical
company and does not have revenue for the year ending June 30, 2012.



Revenues - The Company is
a non-revenue producing entity.



Operating Expenses - General
and administrative expenses decreased $ 418,890 to $ 1,854,719 for the year ended June 30, 2012, from $2,273,609 for the year ended
June 30, 2011. The decrease resulted from the Company’s recognition of the fair value of compensation paid in preferred and
common stock.



Research and development expenses for the
year ended June 30, 2012 increased $78,292 to $ 4,234,138 from $4,155,846 for the year ended June 30, 2011. This increase in the
cost of Research and development is largely attributable to the development of additional drug candidates and increased research
and development payroll.



Research and Development expenses were
offset in the amount of $ -0-, $ -0- and $-0-, and $162,524 in the years ended June 30, 2012, 2011 and June 30, 2010, respectively,
by a Connecticut Refundable Research and Development Credit.



Other Income (Expenses) –
Net Interest income was $ 53,895 and $14,339 for the years ending June 30, 2012, and 2011, respectively. Net Interest income in
2012 included interest on cash equivalent deposits in an interest-bearing account.



80







Income Taxes – There
is no provision for income taxes due to ongoing operating losses. As of June 30, 2012, we had federal net operating loss carryforwards
of approximately $ 20,033,000 and deferred Research and Development tax credits and other deferred tax credits resulting in a deferred
tax benefit of approximately $ 10,967,094 for Federal reporting purposes. This amount has been offset by a full valuation allowance.



Net Operating Loss - For
the year ended June 30, 2012, the Company had a net loss of $6,207,207 , or $ 0.04 per share compared to a net loss of $6,477,165,
or $0.05 per share for the year ending June 30, 2011.



Liquidity and Capital Reserves



The Company had cash and cash equivalents
of $14,274,985 as of June 30, 2012. On the same date, accounts payable and accrued liabilities outstanding totaled $700,919.



Since inception, the Company has expended
substantial resources on research and development. Consequently, we have sustained substantial losses. The Company has an accumulated
deficit of $29,424,116 at June 30, 2012.



As of June 30, 2012 we have a cash and
cash equivalent balance of $ 14,274,985 . As of the date of the filing, the Company has raised gross proceeds of $20,000,000, before
estimated offering expenses of approximately $1,447,750 which includes placement agent and attorneys’ fees from the sale
of its Series B Convertible Preferred Stock. Additionally, the Company has raised gross proceeds of $2,500,000, before estimated
offering expenses of approximately $175,000 which includes placement agent and attorneys’ fees from the sale of its Series
C Convertible Preferred Stock. The Company estimates that it can support current budgeted operations through June 30, 2014 .



While our cash and cash equivalent balance
is sufficient for us to continue our operations through June 30, 2014 , it is insufficient to fully execute the Company’s
business plan. If the Company is unable to obtain debt or equity financing to meet its cash needs it may have to severely limit,
its business plan by reducing the funds it hopes to expend on pre-clinical studies and trials, the establishment of our own laboratory
and/or research and development project.



Off Balance Sheet Arrangements



We have not entered into any off-balance
sheet arrangements during the year ended June 30, 2012.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



Accounting Basis –
The Company has not earned any revenue from its planned principal operations. Accordingly, the Company's activities have been accounted
for as those of a "Development Stage Company" as defined by section 810-10-20 of the FASB Accounting Standards Codification.
Among the disclosures required by section 810-10-20 of the FASB Accounting Standards Codification are that the Company's financial
statements be identified as those of a development stage company, and that the statements of operations and stockholders' equity
and cash flows disclose activity since the date of the Company's inception. All losses accumulated since inception have been considered
as part of the Company's development stage activities.



Research and Development
– Research and development expenses consist primarily of costs associated with the preclinical and or clinical trials of
drug candidates, compensation and other expenses for research and development, personnel, supplies and development materials, costs
for consultants and related contract research and facility costs. Expenditures relating to research and development are expensed
as incurred.



Accounting for Stock Based Compensation
–The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment
transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of
the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all
transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably
measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on
which the performance is complete or the date on which it is probable that performance will occur.



Accounting for Non-Employee Stock
Based Compensation – The Company accounts for equity instruments issued to parties other than employees for acquiring
goods or services under guidance of section 505-50-30 of the FASB Accounting Standards Codification (“FASB ASC Section 505-50-30”).
Pursuant to FASB ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance
of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued
is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.



81







POLICY AFFECTING RECOGNITION OF REVENUE



The Company is a development stage company
and does not have revenue arising from operations



RECENT ACCOUNTING PRONOUNCEMENTS



Recently Issued Accounting Pronouncements



FASB
Accounting Standards Update No. 2011-08



In September 2011, the FASB issued the
FASB Accounting Standards Update No. 2011-08 “Intangibles—Goodwill and Other:Testing Goodwill for Impairment” (“ASU 2011-08”).This Update is to simplify how public and nonpublic
entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether
it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining
whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this Update,
an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than
not that its fair value is less than its carrying amount.



The guidance is effective for interim and
annual periods beginning on or after December 15, 2011.Early adoption
is permitted.



FASB
Accounting Standards Update No. 2011-11



In December 2011, the FASB issued the FASB
Accounting Standards Update No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU
2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable
users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this
disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP
and those entities that prepare their financial statements on the basis of IFRS.



The amended guidance is effective for annual
reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.



FASB Accounting Standards
Update No. 2012-02



In July 2012, the FASB issued the FASB
Accounting Standards Update No. 2012-02 “Intangibles—Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible
Assets for Impairment” (“ASU 2012-02”).



This Update is intended to reduce the cost
and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. This guidance builds upon the
guidance in ASU 2011-08, entitled Testing Goodwill for Impairment. ASU 2011-08 was issued on September 15, 2011, and
feedback from stakeholders during the exposure period related to the goodwill impairment testing guidance was that the guidance
also would be helpful in impairment testing for intangible assets other than goodwill.



The revised standard allows an entity the
option to first assess qualitatively whether it is more likely than not (that is, a likelihood of more than 50 percent) that an
indefinite-lived intangible asset is impaired, thus necessitating that it perform the quantitative impairment test. An entity
is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test
unless the entity determines that it is more likely than not that the asset is impaired.



This Update is effective for annual and
interim impairment tests performed in fiscal years beginning after September 15, 2012.  Earlier implementation is permitted.



Other
Recently Issued, but not yet Effective Accounting Pronouncements



Management does not believe that any other
recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying
consolidated financial statements.



ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Company is not exposed to market risk
related to interest rates on foreign currencies.



ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA



The information required by Item 8 appears
after the signature page to this report.



ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES



None.



82







ITEM 9A(T). CONTROLS AND PROCEDURES



We maintain disclosure controls and procedures
that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such
information is accumulated and communicated to our management, including our chief executive and chief financial officer, as appropriate,
to allow for timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management has designed our disclosure
controls and procedures to provide reasonable assurance of achieving the desired control objectives.



As required by Exchange Act Rule 13a-15(b),
we have carried out an evaluation, under the supervision and with the participation of our management, including our principal
executive and principal financial officer, of the effectiveness of the design and operation of our management, including our principal
executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as of June 30, 2012.



(a) Based upon an evaluation of the effectiveness
of disclosure controls and procedures, our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO")
have concluded that as of the end of the period covered by this Annual Report on Form 10-K our disclosure controls and procedures
(as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were not effective to provide reasonable assurance that information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified
by the rules and forms of the SEC and is accumulated and communicated to management, including the CEO and CFO, as appropriate
to allow timely decisions regarding required disclosure.



(b) Changes in internal control over financial
reporting. Since the Company is not listed on a national exchange or on an automated interdealer quotation system, it is not required
to have an audit committee or independent directors. We consider this to be a material weakness. The Company has addressed this
issue by establishing an Audit Committee and appointing an independent director having financial expertise



Management’s Report on Internal
Control Over Financial Reporting



Management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rules 13a- 15(f) under the Securities Exchange
Act of 1934, as amended. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles in the United States of America (“GAAP”). We recognize that because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies and procedures may deteriorate.



Management conducted an evaluation of the
effectiveness of our internal control over financial reporting as of June 30, 2012. To evaluate the effectiveness of our internal
control over financial reporting, management used the criteria described in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Based on its evaluation
under the Internal Control - Evaluation Framework, due to the material weakness described above, management concluded that
our internal control over financial reporting was not effective as of June 30, 2012. A material weakness is a control deficiency,
or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the financial
statements will not be prevented or detected on a timely basis by the Board in the normal course of their duties.



Based on its evaluation under the Internal
Control - Evaluation Framework, due to the material weakness described above, management concluded that our internal control over
financial reporting was not effective as of June 30, 2012.



The material weakness relates to a lack
of a functioning audit committee and a lack of outside directors on the Company’s Board during the period of the evaluation.
We intend to initiate measures to remediate the identified material weakness by establishing a formal audit committee and the appointment
of additional outside directors, one or more of whom may be appointed to a fully functioning audit committee.



During the period ended June 30, 2009,
the Company implemented additional segregation of responsibilities and authorizations for initiating, authorizing and recording
transactions. In addition, the Company has engaged the services of a financial consultant to assist in reviewing significant transactions
and the Company’s quarterly and annual financial statements. In June 2012, Company appointed an Independent Director who
also is the Chair of our Audit Committee to further strengthen our internal controls.



83







Changes in Internal Control Over Financial
Reporting



Other than as described above, there were
no material changes in our internal control over financial reporting (as defined in Rule 13a- 15(f) under the Exchange Act) that
occurred as of June 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.



Attestation Report of the Independent
Registered Public Accounting Firm



This annual report includes an attestation
report of our registered public accounting firm regarding internal control over financial reporting . The final paragraph of the
Auditor’s Report states:



“In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2012 and 2011
and the results of its operations and its cash flows for the each of the three fiscal years in the period ended June 30, 2012 and
for the period from May 12, 2005 (inception) through June 30, 2012 in conformity with accounting principles generally accepted
in the United States of America.”



ITEM 9B Other Information



None.



ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CORPORATE GOVERNANCE



The following table sets forth the names
and ages of our current directors and executive officers, their principal offices and positions and the date each such person became
a director or executive officer. Executive officers are elected annually by our Board of Directors. Each executive officer holds
his office until he resigns, is removed by the Board or his successor is elected and qualified. Directors are elected annually
by our stockholders at the annual meeting. Each director holds his office until his successor is elected and qualified or his earlier
resignation or removal.



The following persons are the directors
and executive officers of our company:



|Name                    |  | Age  |  |  | Title                                                            
|----------------------- |  | ---- |  |  | -----------------------------------------------------------------
|                        |  |      |  |  |                                                                  
|Anil Diwan, PhD.        |  | 54   |  |  | President; Chairman of the Board                                 
|Eugene Seymour, MD, MPH |  | 71   |  |  | Chief Executive Officer; Acting Chief Financial Officer; Director
|Stanley Glick, CPA      |  | [__] |  |  | Director                                                         
|                        |  |      |  |  |                                                                  

The Company’s executive officers
and directors are elected annually and serve until the next annual meeting of stockholders.



Eugene Seymour, MD, MPH , age 71,
has been Chief Executive Officer (CEO), Interim Chief Financial Officer, and a director of the Company since consummation of the
merger on June 1, 2005. From 1996 until May 2005 he has been a private investor and has held no corporate positions. During this
period he formed a non-profit foundation that funded both testing and training programs for health workers in Asia and Africa.
He was a consultant to the UN Global Program on AIDS and was sent to several countries, (Lithuania, Latvia, Estonia and Russia)
to interact with local physicians and assist them in setting up testing programs. Dr. Seymour obtained a Master's degree in the
Epidemiology of Infectious Diseases at UCLA in addition to his medical degree. He began clinical practice in Internal Medicine
and joined the UCLA Medical School faculty. He left UCLA after two years and joined the USC faculty as Associate Professor. Dr.
Seymour served in the Medical Corps of US Army Reserve during the Vietnam era and attained the rank of Major. In 1986, he was requested
by the US government to establish a testing laboratory and run a large-scale surveillance program for HIV prevalence in the Hispanic
population in Los Angeles. His laboratory ended up testing over 50,000 people. In 1989, he founded StatSure Diagnostic Systems,
Inc. (SDS) (formerly Saliva Diagnostic Systems, Inc.), raised capital and developed the rapid HIV antibody blood test (Hema-Strip).
He took the company public in 1993 as CEO and President. He left SDS in 1996. Dr. Seymour holds 8 issued patents, and is married
with three children, two of whom are physicians. The Company concluded Dr. Seymour’s extensive experience in treating infectious
disease and viruses, plus his public company experience, make him an ideal candidate to serve in these capacities.



84







Anil Diwan, PhD, age 54, has been
President and the Chairman of the Board of Directors of the Company since consummation of the merger on June 1, 2005. Dr. Diwan
simultaneously therewith and since its formation, has also served as the Chief Executive Officer and Director of AllExcel, Inc.
(from 1995 to the present) and TheraCour Pharma, Inc. (from 2004 to the present) and is the original inventor of the technologies
licensed to NanoViricides Inc, as well as the TheraCour polymeric micelle technologies and products based on them. Since 1992,
he has researched and developed TheraCour nanomaterials. Dr. Diwan was the first to propose the development of novel pendant polymers
for drug delivery that led to an explosion of research in pharmacological applications of polymeric micelles. Anil has won over
12 NIH SBIR grants. Dr. Diwan holds several issued patents, and threePCT international patent applications in various stages of
prosecution in a number of countries, and , and has made intellectual property depositions of several additional patentable discoveries
with the patent attorney. Dr. Diwan has held several scholastic distinctions, including an All-India 9th rank on the Joint Entrance
Examination of all IIT’s. He holds a Ph.D. in Biochemical Engineering from Rice University (1986) and B.S. in Chemical Engineering
from Indian Institute of Technology (IIT) Bombay (1980). We concluded Dr. Diwan’s experience plus his status as creator of
the Company’s technologies render him uniquely qualified to serve in these capacities.



Mr. Stanley Glick, CPA, was appointed as
an independent Director and as chair of the Audit Committee of the Company on June 22, 2012. Mr. Glick has over forty years of
experience in his long career of providing auditing, accounting, tax, and management advisory services, to clients in various industries.
Mr. Glick has been a member of several Boards of Directors for not-for-profit organizations in the Westport, CT area. In particular,
he has served as a Director and member of Audit Committee of “A Better Chance” of Westport, CT, from 2000 to 2005.
From 1977 until present, Mr. Glick has managed an independent practice as a Certified Public Accountant in Connecticut and New
York States. Prior to forming his own CPA firm, Mr. Glick was employed by local and regional CPA firms where he performed and supervised
audits and financial reporting. Mr. Glick is a member of the American Institute of Certified Public Accountants, The Connecticut
Society of Certified Public Accountants, and the New York State Society of Certified Public Accountants. He holds a Bachelor of
Business Administration degree in Accounting from Baruch College of Business (now Baruch College of the City University of New
York). Mr. Glick is married and lives in Trumbull, CT. We concluded that Mr. Glick’s broad business, accounting and auditing
experience meets the criteria of an independent director and an “audit committee Financial Expert. The Company has expanded
and enhanced its Board of Directors by the appointment of Stanley Glick CPA, as an independent director. The Company understands
that as an SEC-filing company trading on the over-the-counter bulletin-board, the Company is currently not required to appoint
independent board members, and is not required to appoint an independent board member financial expert to chair its Audit Committee.
However, the Company believes that an independent board member with expertise in financial reporting and management advisory services,
chairing the audit committee, would provide additional assurances to the financial community and other users of the Company’s
financial statements. Mr. Glick’s appointment as an independent director and audit committee chairman, significantly improves
the Company’s financial oversight and management.



AUDIT COMMITTEE



Although its By-laws provide for the appointment
of one, the Company is not yet required to have an Audit Committee as a result of the fact that our common stock is not considered
a “listed security” as defined in Rule 10A-3 of the Exchange Act. In June , 2012 Stanley Glick, CPA was elected, as
an independent member, to the Company’s Board of Directors and the Chair of the Company’s Audit Committee. Due to his
education and extensive experience as a Certified Public Accountant, Mr. Glick meets the criteria of an independent director and
an “Audit Committee Financial Expert” as provided in Release 33-8173 and 34-47235.



CODE OF ETHICS



We have adopted a code of ethics meeting
the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter
wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public
reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence
to the provisions of the code of ethic. Our code of ethics is filed as an exhibit to this Form 10-K.



ITEM 11. EXECUTIVE COMPENSATION



The following table reflects all forms
of compensation for the years ended June 30, 2012, 2011 and 2010.





|Name and Principal 
Position |  |  | Year |  |  | Salary |         |  | Bonus ($) |   |   | Stock
 Award(s) ($) |  |   | Option 
Awards(#) |  |  | All Other
 Compensation ($) |   |  | Total ($) |  
|---------------------------- |  |  | ---- |  |  | ------ | ------- |  | --------- | - | - | ------------------- |  | - | ----------------- |  |  | --------------------------- | - |  | --------- | -
|                             |  |  |      |  |  |        |         |  |           |   |   |                     |  |   |                   |  |  |                             |   |  |          
|Eugene Seymour,              |  |  | 2012 |  |  | $      | 275,000 |  |           | $ | - |                     |  | $ | 267,119           |  |  |                             | - |  |           | $
|CEO, Director                |  |  | 2011 |  |  | $      | 275,000 |  |           |   |   |                     |  | $ | 574,581           |  |  |                             |   |  |           | $
|                             |  |  | 2010 |  |  | $      | 254,167 |  |           | $ | — |                     |  | $ | 513,823           |  |  |                             | — |  |           | $
|                             |  |  |      |  |  |        |         |  |           |   |   |                     |  |   |                   |  |  |                             |   |  |           |  
|Anil Diwan                   |  |  | 2012 |  |  | $      | 275,000 |  |           | $ | - |                     |  | $ | 431,486           |  |  |                             |   |  |           | $
|President, Director          |  |  | 2011 |  |  | $      | 275,000 |  |           |   |   |                     |  | $ | 574,581           |  |  |                             |   |  |           | $
|                             |  |  | 2010 |  |  | $      | 252,000 |  |           | $ | — |                     |  | $ | 513,823           |  |  |                             | - |  |           | $
|                             |  |  |      |  |  |        |         |  |           |   |   |                     |  |   |                   |  |  |                             |   |  |           |  
|Stanley Glick,               |  |  | 2012 |  |  |        | —       |  |           |   | — |                     |  |   | —                 |  |  |                             | — |  |           |  
|Director*                    |  |  |      |  |  |        |         |  |           |   |   |                     |  |   |                   |  |  |                             |   |  |           |  



Appointed June 22, 2012.



85







The following table sets forth for each
named executive officer certain information concerning the outstanding equity awards as of June 30, 2012.



|Name and 
Principal 
Position      |  | Number of
 Securities
 Underlying

    Unexercised Options
Exercisable |           |  | Number of Securities 
Underlying
    
Unexercised 
Options
Unexercisable |  |   | Option 
Exercise 
Price ($) |  |   | Option 
Expiration Date |  | Number 
of 
Shares 
or Units
 of Stock
    
that
 Have 
Not
 Vested |                    |  | Market 
Value of
 Shares 
or Units
    
of Stock
 that 
Have
 Not
 Vested |   |  | Equity
 Incentive Plan 
Awards:
    Number of
 Unearned 
Shares, Units or 
Other 
Rights that 
Have Not 
Vested |  |   | Equity
 Incentive 
Plan 
Awards: 
Market
    or 
Payout 
Value of 
Unearned Shares, 
Units or 
Other 
Rights that 
Have Not 
Vested | 
|---------------------------------- |  | ---------------------------------------------------------------------- | --------- |  | ------------------------------------------------------------------------ |  | - | --------------------------- |  | - | ----------------------- |  | ------------------------------------------------------------------- | ------------------ |  | ------------------------------------------------------------------------- | - |  | --------------------------------------------------------------------------------------------------------------- |  | - | ----------------------------------------------------------------------------------------------------------------------------------- | 
|Eugene Seymour, CEO and Director   |  |                                                                        | 500,000   |  |                                                                          |  | — |                             |  | $ | 0.10                    |  |                                                                     | September 26, 2015 |  |                                                                           | — |  |                                                                                                                 |  | — |                                                                                                                                     | 
|                                   |  |                                                                        |           |  |                                                                          |  |   |                             |  |   |                         |  |                                                                     |                    |  |                                                                           |   |  |                                                                                                                 |  |   |                                                                                                                                     | 
|Anil Diwan, President and Director |  |                                                                        | 1,000,000 |  |                                                                          |  | — |                             |  | $ | 0.10                    |  |                                                                     | September 26, 2015 |  |                                                                           | — |  |                                                                                                                 |  | — |                                                                                                                                     | 



COMPENSATION OBJECTIVES



We believe that the compensation programs
for the Company's NEOs should reflect the Company's performance and the value created for the Company's stockholders. In addition,
the compensation programs should support the short-term and long-term strategic goals and values of the Company, and should reward
individual contributions to the Company's success. Our compensation plans are consequently designed to link individual rewards
with Company's performance by applying objective, quantitative factors including the Company's own business performance and general
economic factors. We also rely upon subjective, qualitative factors such as technical expertise, leadership and management skills,
when structuring executive compensation in a manner consistent with our compensation philosophy.



ELEMENTS OF COMPENSATION



BASE SALARY. All full time executives are
paid a base salary. Base salaries for our executives are established based on the scope of their responsibilities, professional
qualifications, academic background, and the other elements of the executive's compensation, including stock-based compensation.
However, at this time current total annual compensation is not in line with comparable companies, because our philosophy was to
pay modest salaries with no bonus to conserve capital resources for future company growth. Our intent is to set executives' base
salaries near the median of the range of salaries for executives in similar positions with similar responsibilities at comparable
companies, in line with our compensation philosophy. Base salaries are reviewed annually, and may be increased to align salaries
with market levels after taking into account the subjective evaluation described previously.



EQUITY INCENTIVE COMPENSATION. We believe
that long-term performance is achieved through an ownership culture participated in by our executive officers through the use of
stock-based awards. Currently, we do not maintain any incentive compensation plans based on pre-defined performance criteria. The
Board of Directors has the general authority, however, to award equity incentive compensation, i.e. stock options, to our executive
officers in such amounts and on such terms as the committee determines in its sole discretion. The Board of Directors does not
have a determined formula for determining the number of options available to be granted. The Board of Directors will review each
executive's individual performance and his or her contribution to our strategic goals periodically. With the exception of stock
options automatically granted in accordance with the terms of the employment agreement with our executive officers, our Board of
Directors grants equity incentive compensation at times when we do not have material non-public information to avoid timing issues
and the appearance that such awards are made based on any such information. As additional compensation for the year ended June
30, 2012, under the March 3, 2010 employment agreements, the Company issued 593,750 shares of the Company’s Series A Convertible
Preferred Stock and 250,000 of the Company’s restricted Common Stock. The convertible preferred series A shares are subject
to restriction on sale. The valuation applied to the shares was based upon an appraisal derived from the application of statistical
calculations and based upon assumptions at the time of the appraisal which may not be realized.



86







DETERMINATION OF COMPENSATION



The Company's executive compensation program
for the named executive officers (NEOs) is administered by the Board of Directors. The Board of Directors makes independent decisions
about all aspects of NEO compensation, and takes into account compensation data and benchmarks for comparable positions and companies
in different applicable geographical areas.



The Company's current executives’
compensation program as of the date of this report has been at the same level since 2005. The program is simplistic and is less
structured than a more mature corporation. Two of our officers are founders or co-founders of the Company and their ownership
in the Company has driven their philosophy to provide modest salaries and no annual bonus. The compensation structure was set
to retain capital resources in the Company to further growth.



ITEM 12. SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT, AND RELATED STOCKHOLDERS MATTERS.



The following table sets forth information
relating to the beneficial ownership of the Company's common stock by those persons beneficially holding more than 5% of the Company's
common stock, by the Company's directors and executive officers, and by all of the Company's directors and executive officers as
a group as of June 30, 2012.



|Name and Address of Beneficial Owner                            |  | Amount and 
Nature of Beneficial
 Owner (1) |            |  | Percent of
 Class | 
|--------------------------------------------------------------- |  | ------------------------------------------- | ---------- |  | ----------------- | 
|TheraCour Pharma, Inc.(2)                                       |  |                                             |            |  |                   | 
|135 Wood Street                                                 |  |                                             |            |  |                   | 
|West Haven, CT 06516                                            |  |                                             | 33,360,000 |  |                   | 
|Anil Diwan (2) (3)                                              |  |                                             |            |  |                   | 
|135 Wood Street                                                 |  |                                             |            |  |                   | 
|West Haven, CT 06516                                            |  |                                             | 40,242,200 |  |                   | 
|Eugene Seymour (4)                                              |  |                                             |            |  |                   | 
|135 Wood Street                                                 |  |                                             |            |  |                   | 
|West Haven, Connecticut 06516                                   |  |                                             | 6,000,000  |  |                   | 
|All Directors and Executive Officers as a Group (2 persons) (5) |  |                                             | 46,242,200 |  |                   | 



(1)          
 For each shareholder, the calculation of percentage of beneficial ownership is based upon 155,612,193 shares of Common Stock
outstanding as of June 30, 2012 and shares of Common Stock subject to options, warrants and/or conversion rights held by the shareholder
that are currently exercisable or exercisable within 60 days, which are deemed to be outstanding and to be beneficially owned by
the shareholder holding such options, warrants, or conversion rights. The percentage ownership of any shareholder is determined
by assuming that the shareholder has exercised all options, warrants and conversion rights to obtain additional securities and
that no other shareholder has exercised such rights.



(2)            Anil
Diwan, the Company’s President and Chairman, also serves as the CEO and Director of TheraCour Pharma Inc. and owns approximately
70% of the outstanding capital stock of TheraCour. Anil Diwan has both investment and dispositive power over the Nanoviricides
shares held by TheraCour Pharma, Inc. Does not include 7,000,000 shares of the Company’s Series A Convertible Preferred Stock
(the “Series A”) which votes at the rate of nine shares of Common Stock per each share of Series A and is convertible
into three and one half shares of Common Stock upon a change in control of the Company or upon achieving certain trading prices
of the Common Stock.



(3)            Anil
Diwan, President and Chairman of the Board of Directors. Includes 5,882,200 shares of NanoViricides common stock received
by Dr. Diwan as founder and 1,000,000 shares of NanoViricides common stock issuable upon exercise of options held by Dr. Diwan
that are currently exercisable or will become exercisable within 60 days. Also includes 33,360,000 owned by TheraCour Pharma, Inc.,
over which Dr. Diwan holds voting and dispositive power. Does not include 750,000 shares of the Company’s Series A Convertible
Preferred Stock (the “Series A”) which votes at the rate of nine shares of Common Stock per each share of Series A
and is convertible into three and one half shares of Common Stock upon a change in control of the Company or upon achieving certain
trading prices of the Common Stock.



(4)            Eugene
Seymour, Chief Executive Officer and Director. Includes 6,000,000 shares of NanoViricides common stock held by Dr.
Seymour and 500,000 shares of NanoViricides common stock issuable upon exercise of options held by Dr. Seymour that are
currently exercisable or will become exercisable within 60 days. . Does not include 750,000 shares of the Company’s
Series A Convertible Preferred Stock (the “Series A”) which votes at the rate of nine shares of Common Stock per
each share of Series A and is convertible into three and one half  shares of Common Stock upon a change in control of the
Company or upon achieving certain trading prices of the Common Stock.



87







(5)            Includes
33,360,000 shares of Common Stock indirectly owned by certain of the Executive Officers and Directors as a group.



EMPLOYMENT AGREEMENTS



On March 3, 2010, the Company entered into
employment agreements with its two executive officers, Eugene Seymour, Chief Executive Officer and Chief Financial Officer and
Anil Diwan, President and Chairman of Board. Both agreements provide a minimum annual base salary of $250,000 for a term of four
years. In addition, Dr. Seymour and Dr. Diwan are eligible for an increase in base salary to $275,000 if the Company consummates
a financing with gross proceeds of at least $5,000,000. Also, the base salary shall increase to $300,000 for Dr. Seymour and $300,000
for Dr. Diwan if the Company becomes listed on a national stock exchange.



As additional compensation under the employment
agreements, the Company issued 250,000 shares of the Company’s Series A Convertible Preferred Stock and shall issue an additional
250,000 shares of Series A Convertible Preferred Stock on each anniversary of the respective employment agreements.



On March 3, 2010, the Company entered into
an employment agreement with Dr. Jayant Tatake to serve as Vice President of Research and Development. The employment agreement
provides for term of four years with a base salary of $150,000. In addition, the Company issued 93,750 shares of Series A Convertible
Preferred Stock and 125,000 shares of common stock, and will issue an additional 93,750 shares of Series A Convertible Preferred
Stock and 125,000 shares of common stock on each anniversary date of the agreement.



On March 3, 2010, the Company entered into
an employment agreement with Dr. Randall Barton to serve as Chief Scientific Officer. The employment agreement provides for term
of four years with a base salary of $150,000. In addition, the Company issued 125,000 shares of common stock, and will issue an
additional 125,000 shares of common stock on each anniversary date of the agreement.



COMPENSATION OF DIRECTORS



At this time, directors, who are officers
of the Company, receive no remuneration for their services as directors of the Company, nor does the Company reimburse directors
for expenses incurred in their service to the Board of Directors. The Company does not expect to pay any fees to its directors
for the 2011 fiscal year.



COMPENSATION OF SCIENTIFIC ADVISORY BOARD



The Company anticipates holding four Scientific
Advisory Board meetings per annum. As compensation, each member of the Scientific Advisory Board (SAB) will be granted each quarter
10,000 warrants to purchase the Company’s common stock at 120% of the Company’s closing stock quote on the day following
the meeting. Should the Company not call a quarterly meeting, quarterly options will be granted on May 15, August 15, November
15, and February 15. The warrants will have a four year expiration date. In addition the Company will reimburse each SAB member
for travel and other out-of-pocket expenses incurred in the course of performing their services. For the year ended June 30, 2012,
the SAB was granted a total of 240,000 stock warrants exercisable into common shares at prices from $ 0.80 to $ 1.41 per share.



ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE



On June 2, 2012 Stanley Glick, CPA was
appointed as an independent member of our Board of Directors. Up until that time we did not have any independent directors on our
Board of Directors, and therefore had no formal procedures in effect for reviewing and pre-approving any transactions between us,
our directors, officers and other affiliates. We have used and will continue to use our best efforts to insure that all transactions
are on terms at least as favorable to the Company as we would negotiate with unrelated third parties.



TheraCour Pharma, Inc.



On May 12, 2005, the Company entered into
a Material License Agreement, amended as of January 8, 2007 (the “License”) with TheraCour Pharma, Inc., (“TheraCour”),
our largest shareholder. As of the present, TheraCour granted the Company an exclusive license in perpetuity for technologies developed
by TheraCour for six virus types: HIV, HCV, Herpes, Rabies, Asian (bird) flu and Influenza. In consideration for obtaining this
exclusive license, we agreed: (1) that TheraCour can charge its costs (direct and indirect) plus no more than 30% of direct costs
as a development fee and such development fees shall be due and payable in periodic installments as billed; (2) to pay $25,000
per month for usage of lab supplies and chemicals from existing stock held by TheraCour; (3) to pay the greater of $2,000 or actual
costs, for other general and administrative expenses incurred by TheraCour on our behalf; (4) to make royalty payments of 15% (calculated
as a percentage of net sales of the licensed drugs) to TheraCour; (5) that TheraCour Pharma, Inc. shall retain the exclusive right
to develop and synthesize nanomicelle(s), a small (approximately twenty nanometers in size) long chain polymer based chemical structure,
as component elements of the Licensed Products. TheraCour agreed that it will develop and synthesize such nanomicelles, to be used
for the Licensed Products, exclusively for NanoViricides, and unless such license is terminated, will not develop or synthesize
the nanomicelles to be used for the Licensed product for its own sake or for others; and (6) to pay an advance payment equal to
twice the amount of the previous months invoice to be applied as a prepayment towards expenses. TheraCour may terminate the License
upon a material breach by us as specified in the agreement. However, the Company has the opportunity to cure the breach within
90 days of receipt of notice to terminate the License. On February 15, 2010, the Company approved an Additional License Agreement
with TheraCour Pharma, Inc. (“TheraCour”). Pursuant to the exclusive Additional License Agreement, in consideration
for the issuance of 7,000,000 shares of the Company’s Series A Convertible Preferred Stock, (the “Series A Preferred”),
the Company was granted exclusive licenses, in perpetuity, for technologies, developed by TheraCour, for the development of drug
candidates for the treatment of Dengue viruses, Ebola/Marburg viruses, Japanese Encephalitis, viruses causing viral Conjunctivitis
(a disease of the eye) and Ocular Herpes.



88







Development costs charged by and paid to
TheraCour Pharma, Inc. was $ 6,617,004 since inception through June 30, 2012, and $ 2,965,030, $ 1,250,901 and $1,086,927 for the
years ended June 30,,2012, 2011, and 2010, respectively. No royalties are due or have been paid from inception through June 30,
2012.



As of June 30, 2012, TheraCour owns 33,360,000
shares of the Company’s outstanding common stock and 7,000,000 shares of Series A Preferred. Anil Diwan, the Company’s
President and Chairman, also serves as the CEO and Director of TheraCour and owns approximately 70% of the outstanding capital
stock of TheraCour.



KARD Scientific, Inc.



In June 2005, the Company engaged KARD
Scientific to conduct pre clinical human influenza animal (mouse) studies and provide the Company with a full history of the study
and final report with the data collected. This project is on-going. NanoViricides has a fee for service arrangement with KARD.
We do not have an exclusive arrangement with KARD; we do not have a contract with KARD; all work performed by KARD must have prior
approval of the executive officers of NanoViricides; and we retain all intellectual property resulting from the services by KARD.
Dr. Krishna Menon, the Company’s Chief Regulatory Officer- Consulting, a non-executive officer position, is also an officer
and principal owner of KARD Scientific. Lab fees charged by KARD Scientific for services for the years ended June 30, 2012, 2011,
and 2010, were, $ 507,500, $ 719,462 and $78,940, respectively, and $ 1,860,137 since inception.



ITEM 14. PR INCIPAL ACCOUNTING
FEES AND SERVICES



Audit Fees



The aggregate fees for each of the last
two years for professional services rendered by the principal accountant for our audits of our annual financial statements and
interim reviews of our financial statements included in our fillings with Securities and Exchange Commission on Form 10-K and 10-Qs
or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for
those years were approximately:



|June 30, 2012 |  |  | $ | 138,250 |  |  | Li & Company, P.C.
|------------- |  |  | - | ------- |  |  | ------------------
|June 30, 2011 |  |  | $ | 90,000  |  |  | Li & Company, P.C.



Audit Related Fees



The aggregate fees in each of the last
two years for the assurance and related services provided by the principal accountant that are not reasonably related to the performance
of the audit or review of the Company's financial statements and are not reported in paragraph (1) were approximately:



|June 30, 2012 |  |  | $ | 0 |  |  | Li & Company, P.C.
|------------- |  |  | - | - |  |  | ------------------
|June 30, 2011 |  |  | $ | 0 |  |  | Li & Company, P.C.



We incurred these fees in connection with
registration statements and financing transactions. Tax Fees



The aggregate fees in each of the last
two years for the professional services rendered by the principal accountant for tax compliance, tax advice and tax planning were
approximately:



|June 30, 2012 |  |  | $ | 0 |  |  | Li & Company, P.C.
|------------- |  |  | - | - |  |  | ------------------
|June 30, 2011 |  |  | $ | 0 |  |  | Li & Company, P.C.



89







All Other Fees



The aggregate fees in each of the last
two years for the products and services provided by the principal accountant, other than the services reported in paragraph (1)
were approximately:



|June 30, 2012 |  |  | $ | 0 |  |  | Li & Company, P.C.
|------------- |  |  | - | - |  |  | ------------------
|June 30, 2011 |  |  | $ | 0 |  |  | Li & Company, P.C.



Pre-Approval Policies



The Board of Directors, which performs
the equivalent functions of an audit committee, currently does not have any pre-approval policies or procedures concerning services
performed by Li & Company, P.C. All the services performed by Li & Company, P.C. as described above were pre-approved by
the Board of Directors.



ITEM 15 . EXHIBITS



|Exhibit No. |  | Description                                                                                                                                                                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                                                                   
|3.1*        |  | Articles of Incorporation, as amended, of the Registrant                                                                                                                                                                                                                          
|3.2*        |  | By-laws of the Registrant                                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                   
|4.1*        |  | Specimen Stock Certificate of the Registrant                                                                                                                                                                                                                                      
|4.2*        |  | Series A Convertible Debenture                                                                                                                                                                                                                                                    
|4.3*        |  | Form of Warrant                                                                                                                                                                                                                                                                   
|10.1*       |  | Share Exchange Agreement between NanoViricide, Inc. and the Registrant                                                                                                                                                                                                            
|10.2*       |  | Employment Agreement Eugene Seymour                                                                                                                                                                                                                                               
|10.3*       |  | Employment agreement Anil Diwan                                                                                                                                                                                                                                                   
|10.4*       |  | Employment agreement Leo Ehrlich                                                                                                                                                                                                                                                  
|10.5*       |  | Form of Scientific Advisory Board Agreement                                                                                                                                                                                                                                       
|10.6*       |  | Amended License Agreement with TheraCour Pharma, Inc.                                                                                                                                                                                                                             
|10.7*       |  | Lease with landlord                                                                                                                                                                                                                                                               
|10.8*       |  | Form of First Subscription Agreement                                                                                                                                                                                                                                              
|10.9*       |  | Form of Second Subscription Agreement                                                                                                                                                                                                                                             
|10.10*      |  | Code of Ethics                                                                                                                                                                                                                                                                    
|10.11*      |  | Amended Agreement #2 with TheraCour Pharma, Inc.                                                                                                                                                                                                                                  
|10.12*      |  | Memorandum of Understanding with Vietnam’s National Institute of Hygiene and Epidemiology (NIHE) dated December 23, 2005                                                                                                                                                          
|31.1        |  | Certification of Chief Executive and Interim Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended                                                                                                           
|32.1        |  | Certification of Chief Executive Officer and Interim Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



|* | Incorporated by reference to the Company’s registration statement on Form 10-SB, filed with the Securities Commission on November 14, 2006, as amended.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------



90









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.



Dated: October 15, 2012



| | NANOVIRICIDES, INC.                                                            
| | -------------------------------------------------------------------------------
| |                                                                                
| | /s/ Eugene Seymour, MD                                                         
| | Name: Eugene Seymour, M.D.                                                     
| | Title: Chief Executive Officer and Interim Chief Financial Officer and Director
| | (Principal Executive and Accounting Officer)                                   
| |                                                                                
| | /s/ Anil Diwan                                                                 
| | Name: Anil Diwan,                                                              
| | Title: President and Chairman of the Board of Directors                        



Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicate



|October 15, 2012 |                                                                                 | 
|---------------- | ------------------------------------------------------------------------------- | 
|                 | /s/ Eugene Seymour, MD                                                          | 
|                 | Name: Eugene Seymour, MD                                                        | 
|                 | Title: Chief Executive Officer and Interim Chief Financial Officer and Director | 
|                 | (Principal Executive and Accounting Officer)                                    | 
|                 |                                                                                 | 
|October 15, 2012 | /s/ Anil Diwan                                                                  | 
|                 | Name: Anil Diwan,                                                               | 
|                 | Title: President and Chairman of the Board of Directors                         | 









91









NANOVIRICIDES, INC.



(A DEVELOPMENT STAGE COMPANY)



June 30, 2012, 2011
and 2010



Index to the Financial Statements





|Contents                                                                                                                                               |  | Page(s)
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------
|                                                                                                                                                       |  |        
|Report of Independent Registered Public Accounting Firm                                                                                                |  | F-2    
|                                                                                                                                                       |  |        
|Balance Sheets at June 30, 2012 and 2011                                                                                                               |  | F-4    
|                                                                                                                                                       |  |        
|Statements of Operations for the Fiscal Year Ended June 30, 2012, 2011 and 2010 and for the Period from May 12, 2005 (Inception) through June 30, 2012 |  | F-5    
|                                                                                                                                                       |  |        
|Statements of Stockholders’ Equity for the Fiscal Year Ended June 30, 2012, 2011 and 2010                                                              |  | F-6    
|                                                                                                                                                       |  |        
|Statements of Cash Flows for the Fiscal Year Ended June 30, 2012, 2011 and 2010 and for the Period from May 12, 2005 (Inception) through June 30, 2012 |  | F-7    
|                                                                                                                                                       |  |        
|Notes to the Financial Statements                                                                                                                      |  | F-8    



F-1







REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM





To the Board of Directors and Stockholders
of

Nanoviricides, Inc.

(A development stage company)

West Haven, Connecticut



We have audited the accompanying balance
sheets of Nanoviricides, Inc., a development stage company, (the “Company”) as of June 30, 2012 and 2011 and the related
statements of operations, stockholders’ equity and cash flows for each of the three fiscal years in the period ended June
30, 2012 and for the period from May 12, 2005 (inception) through June 30, 2012. We have also audited the Company’s internal
control over financial reporting as of June 30, 2012, based on criteria established in“Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”.  The management
of the Company is responsible for these financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on these financial
statements and an opinion on the company’s internal control over financial reporting based on our audits.



We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained in all material respects.  Our audits
of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control over financial reporting based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.



A company’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial statements.



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



A material weakness is a control deficiency,
or a combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on
a timely basis. The following material weaknesses have been identified and included in management’s assessment as of June
30, 2012:



| ̈ | The Company does not have sufficient segregation
        of duties within accounting functions, which is a basic internal control.  Due to its size and nature, segregation of
        all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible,
        the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management
        evaluated the impact of its failure to have segregation of duties on its assessment of its disclosure controls and procedures and
        has concluded that the control deficiency that resulted represented a material weakness.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These material weaknesses were considered
in determining the nature, timing and extent of audit tests applied in our audit of the Company’s June 30, 2012 financial
statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not
affect our opinion on those financial statements.





F-2







In our opinion, because of the effect of
the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained
effective internal control over financial reporting as of June 30, 2012, based on the criteria established in“Internal
Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”.  Also
in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of June 30, 2012 and 2011 and the related statements of operations, stockholders’ equity and cash flows for
each of the three fiscal years in the period ended June 30, 2012 and for the period from May 12, 2005 (inception) through June
30, 2012 in conformity with accounting principles generally accepted in the United States of America.









|/s/ Li & Company, PC | 
|-------------------- | 



Skillman, New Jersey

October 15, 2012



F-3









Nanoviricides, Inc.



(A Development Stage Company)

Balance Sheets



|                                                                                                                                                              |  | June 30, 2012 |             |   | June 30, 2011 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------- | -
|                                                                                                                                                              |  |               |             |   |               |  
|ASSETS                                                                                                                                                        |  |               |             |   |               |  
|CURRENT ASSETS:                                                                                                                                               |  |               |             |   |               |  
|Cash and cash equivalents                                                                                                                                     |  | $             | 14,274,985  |   |               | $
|Prepaid expenses                                                                                                                                              |  |               | 314,174     |   |               |  
|Other current assets                                                                                                                                          |  |               | -           |   |               |  
|                                                                                                                                                              |  |               |             |   |               |  
|Total Current Assets                                                                                                                                          |  |               | 14,589,159  |   |               |  
|                                                                                                                                                              |  |               |             |   |               |  
|PROPERTY AND EQUIPMENT                                                                                                                                        |  |               |             |   |               |  
|Property and equipment                                                                                                                                        |  |               | 1,440,717   |   |               |  
|Accumulated depreciation                                                                                                                                      |  |               | (825,875    | ) |               |  
|                                                                                                                                                              |  |               |             |   |               |  
|Property and equipment, net                                                                                                                                   |  |               | 614,842     |   |               |  
|                                                                                                                                                              |  |               |             |   |               |  
|TRADEMARK                                                                                                                                                     |  |               |             |   |               |  
|Trademark                                                                                                                                                     |  |               | 458,954     |   |               |  
|Accumulated amortization                                                                                                                                      |  |               | (33,147     | ) |               |  
|                                                                                                                                                              |  |               |             |   |               |  
|Trademark, net                                                                                                                                                |  |               | 425,807     |   |               |  
|                                                                                                                                                              |  |               |             |   |               |  
|Total Assets                                                                                                                                                  |  | $             | 15,629,808  |   |               | $
|                                                                                                                                                              |  |               |             |   |               |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                          |  |               |             |   |               |  
|CURRENT LIABILITIES:                                                                                                                                          |  |               |             |   |               |  
|Accounts payable                                                                                                                                              |  | $             | 238,358     |   |               | $
|Accounts payable – related parties                                                                                                                            |  |               | 365,681     |   |               |  
|Accrued expenses                                                                                                                                              |  |               | 96,878      |   |               |  
|Accrued payroll  to officers and related payroll  tax expense                                                                                                 |  |               | -           |   |               |  
|Derivative liability                                                                                                                                          |  |               | 1,078,698   |   |               |  
|                                                                                                                                                              |  |               |             |   |               |  
|Total Current Liabilities                                                                                                                                     |  |               | 1,779,615   |   |               |  
|                                                                                                                                                              |  |               |             |   |               |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                 |  |               |             |   |               |  
|                                                                                                                                                              |  |               |             |   |               |  
|STOCKHOLDERS' EQUITY:                                                                                                                                         |  |               |             |   |               |  
|Series A Convertible Preferred stock, $0.001 par
    value, 10,000,000 shares designated, 9,871,250 and 8,217,500 shares issued and outstanding, respectively |  |               | 9,872       |   |               |  
|Series B Convertible Preferred stock, $0.001 par value, 10,000,000 shares designated, 0, 10,000 and 260,000 shares issued and outstanding, respectively       |  |               | -           |   |               |  
|Series C Convertible Preferred stock, $0.001 par value, 10,000,000 shares designated, 2,353, 0 and 0 shares issued and outstanding, respectively              |  |               | 2           |   |               |  
|Common stock, $0.001 par value; 300,000,000 shares
    authorized; 155,612,293 and 143,548,494 shares issued and outstanding, respectively                    |  |               | 155,645     |   |               |  
|Additional paid-in capital                                                                                                                                    |  |               | 43,108,790  |   |               |  
|Deficit accumulated during the development stage                                                                                                              |  |               | (29,424,116 | ) |               |  
|                                                                                                                                                              |  |               |             |   |               |  
|Total Stockholders' Equity                                                                                                                                    |  |               | 13,850,193  |   |               |  
|                                                                                                                                                              |  |               |             |   |               |  
|Total Liabilities and Stockholders' Equity                                                                                                                    |  | $             | 15,629,808  |   |               | $





See accompanying notes to the financial
statements



F-4







Nanoviricides, Inc.



(A Development Stage Company)

Statements of Operations



|                                                            |  |                     |             |   |                     |   |             |                     |  |   | For the Period from |  
|----------------------------------------------------------- |  | ------------------- | ----------- | - | ------------------- | - | ----------- | ------------------- |  | - | ------------------- | -
|                                                            |  | For the Fiscal Year |             |   | For the Fiscal Year |   |             | For the Fiscal Year |  |   | May 12, 2005        |  
|                                                            |  | Ended               |             |   | Ended               |   |             | Ended               |  |   | (inception) through |  
|                                                            |  | June 30, 2012       |             |   | June 30, 2011       |   |             | June 30, 2010       |  |   | June 30, 2012       |  
|                                                            |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|OPERATING EXPENSES                                          |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|Research and development                                    |  | $                   | 4,265,933   |   |                     | $ | 4,155,846   |                     |  | $ | 3,367,409           |  
|Refund credit research and development costs                |  |                     | -           |   |                     |   | -           |                     |  |   | (162,524            | )
|General and administrative                                  |  |                     | 1,815,816   |   |                     |   | 2,273,609   |                     |  |   | 1,735,066           |  
|                                                            |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|Total operating expenses                                    |  |                     | 6,081,749   |   |                     |   | 6,429,455   |                     |  |   | 4,939,951           |  
|                                                            |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|LOSS FROM OPERATIONS                                        |  |                     | (6,081,749  | ) |                     |   | (6,429,455  | )                   |  |   | (4,939,951          | )
|                                                            |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|OTHER INCOME (EXPENSE):                                     |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|Interest income, net                                        |  |                     | 46,787      |   |                     |   | 14,339      |                     |  |   | 2,980               |  
|Discount on convertible debentures                          |  |                     | -           |   |                     |   | -           |                     |  |   | -                   |  
|Beneficial conversion feature of convertible
    debentures |  |                     | -           |   |                     |   | -           |                     |  |   | -                   |  
|Change in fair market value
    of derivatives              |  |                     | (172,245    | ) |                     |   | (62,049     | )                   |  |   | 192,736             |  
|                                                            |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|Other income (expense),
    net                             |  |                     | (125,458    | ) |                     |   | (47,710     | )                   |  |   | 195,743             |  
|                                                            |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|LOSS BEFORE INCOME TAXES                                    |  |                     | (6,207,207  | ) |                     |   | (6,477,165  | )                   |  |   | (4,744,208          | )
|                                                            |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|INCOME TAX PROVISION                                        |  |                     | -           |   |                     |   | -           |                     |  |   | -                   |  
|                                                            |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|NET LOSS                                                    |  | $                   | (6,207,207  | ) |                     | $ | (6,477,165  | )                   |  | $ | (4,744,208          | )
|                                                            |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|NET LOSS PER COMMON SHARE                                   |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|- BASIC AND DILUTED:                                        |  | $                   | (0.04       | ) |                     | $ | (0.05       | )                   |  | $ | (0.04               | )
|                                                            |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|Weighted average common shares outstanding                  |  |                     |             |   |                     |   |             |                     |  |   |                     |  
|- basic and diluted                                         |  |                     | 149,672,185 |   |                     |   | 139,180,915 |                     |  |   | 130,497,982         |  



See accompanying notes to
the financial statements



F-5







NanoViricides, Inc.

(A Development Stage Company)

Statement of Stockholders' Equity

For the Fiscal Year Ended June
30, 2012, 2011 and 2010



|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         | Deficit     |  |   |               |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | --------- |  | ---------------------------------------- | - | ----- | ---------------------------------------- |  |  | ---------------------------- | - |  | ---------- | --- | - | ------ |  | ----- | ---------- |  | - | ------ |  |  | ------- | ----------- |  | ------------ | - | ------- | ----------- |  | - | ------------- | -
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         | Accumulated |  |   |               |  
|                                                                                                                                       |  | Series A Preferred
    Stock: Par $0.001 |           |  | Series B Preferred
    Stock: Par $0.001 |   |       | Series C Preferred
    Stock: Par $0.001 |  |  | Common Stock: Par
    $0.001 |   |  | Additional |     |   | Stock  |  |       | During the |  |   | Total  | 
|                                                                                                                                       |  | Number of                                |           |  |                                          |   |       | Number of                                |  |  |                              |   |  | Number of  |     |   |        |  |       | Number of  |  |   |        |  |  | Paid-in |             |  | Subscription |   |         | Development |  |   | Stockholders' |  
|                                                                                                                                       |  | Shares                                   |           |  | Amount                                   |   |       | Shares                                   |  |  | Amount                       |   |  | Shares     |     |   | Amount |  |       | Shares     |  |   | Amount |  |  | Capital |             |  | Receivable   |   |         | Stage       |  |   | Equity        |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Balance, June 30, 2009                                                                                                                 |  |                                          | -         |  |                                          | $ | -     |                                          |  |  | -                            |   |  | $          | -   |   |        |  |       |            |  | $ |        |  |  |         | 125,299,457 |  |              | $ | 125,299 |             |  | $ | 14,455,778    |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Collection of stock subscription receivable                                                                                            |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Common shares issued for consulting and legal services valued at
    $ .66 per share, July 31, 2009                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 7,576       |  |              |   | 8       |             |  |   | 4,992         |  
|Common shares issued for consulting services valued at $.66 per
    share, July 31, 2009                                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 8,485       |  |              |   | 8       |             |  |   | 5,592         |  
|Warrants issued to Scientific Advisory Board, August 15, 2009                                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 41,400        |  
|Common shares issued for consulting and legal services valued at
    $ .86 per share, August 31, 2009                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 6,512       |  |              |   | 7       |             |  |   | 4,993         |  
|Common shares issued for consulting services valued at $.86 per
    share, August 31, 2009                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,814       |  |              |   | 6       |             |  |   | 5,594         |  
|Common shares issued for consulting services valued at $ .89 per
    share, September 30, 2009                                         |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 6,292       |  |              |   | 6       |             |  |   | 5,594         |  
|Common shares issued for consulting and legal services valued at
    $ .89 per share, September 30, 2009                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,618       |  |              |   | 6       |             |  |   | 4,994         |  
|Payment of Finder's Fee                                                                                                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (5,250        | )
|Common shares and warrants issued in connection with private placement
    of common stock, September 30, 2009                         |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 2,675,000   |  |              |   | 2,675   |             |  |   | 1,334,825     |  
|Common shares and warrants issued in connection with warrant conversion,
    September 30, 2009                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 3,759,800   |  |              |   | 3,760   |             |  |   | 1,876,140     |  
|Common shares issued for consulting and legal services valued at
    $ .57 per share, October 1, 2009                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 35,088      |  |              |   | 35      |             |  |   | 19,965        |  
|Common shares issued for Legal services valued at $56.50 per share,
    October 26, 2009                                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 12,500      |  |              |   | 13      |             |  |   | 7,050         |  
|Warrants issued for commissions, October 26, 2009                                                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 3,570         |  
|Common shares issued for consulting and legal services valued at
    $ .73 per share, October 31, 2009                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 6,859       |  |              |   | 7       |             |  |   | 4,993         |  
|Common shares issued for consulting services valued at $.73 per
    share, October 31, 2009                                            |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 7,682       |  |              |   | 8       |             |  |   | 5,592         |  
|Common shares issued upon conversion of Warrants, November 10, 2009                                                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 10,000      |  |              |   | 10      |             |  |   | 1,430         |  
|Warrants issued to Scientific Advisory Board, November 15, 2009                                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 39,600        |  
|Common shares issued in payment of accounts payable, November 25,
    2009                                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 32,500      |  |              |   | 33      |             |  |   | 25,167        |  
|Common shares issued for consulting and legal services valued at
    $ .86 per share, November 30, 2009                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,814       |  |              |   | 6       |             |  |   | 4,994         |  
|Common shares issued for consulting services valued at $.86 per
    share, November 30, 2009                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 9,767       |  |              |   | 10      |             |  |   | 8,390         |  
|Common shares issued for consulting services valued at $ .85 per
    share, December 31, 2009                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 9,917       |  |              |   | 10      |             |  |   | 8,390         |  
|Common shares issued for consulting and legal services valued at
    $ .85 per share, December 31, 2009                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,903       |  |              |   | 6       |             |  |   | 4,994         |  
|Common shares issued for consulting and legal services valued at
    $1.043 per share, January 31, 2010                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,794       |  |              |   | 5       |             |  |   | 4,995         |  
|Warrants issued to Scientific Advisory Board, February 15, 2010                                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 40,200        |  
|Series A Preferred Shares issued for TheraCour license valued at
    $.001 par value, February 15, 2010                                |  |                                          | 7,000,000 |  |                                          |   | 7,000 |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Common shares issued for consulting services valued at $1.096 per
    share, February 28, 2010                                         |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,562       |  |              |   | 5       |             |  |   | 4,995         |  
|Common shares issued for employee stock compensation valued at $1.25
    per share, March 3, 2010                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 125,000     |  |              |   | 125     |             |  |   | 156,125       |  
|Common shares issued for employee stock compensation valued at $1.25
    per share, March 3, 2010                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 125,000     |  |              |   | 125     |             |  |   | 156,125       |  
|Series A Preferred Shares issued for employee stock compensation,
    March 3, 2010                                                    |  |                                          | 250,000   |  |                                          |   | 250   |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 513,573       |  
|Series A Preferred Shares issued for employee stock compensation,
    March 3, 2010                                                    |  |                                          | 250,000   |  |                                          |   | 250   |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 513,573       |  
|Series A Preferred Shares issued for employee stock compensation,
    March 3, 2010                                                    |  |                                          | 93,750    |  |                                          |   | 94    |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 192,590       |  
|Common shares issued for consulting and legal servies valued at
    $1.25 per share, March 3, 2010                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 1,000       |  |              |   | 1       |             |  |   | 1,249         |  
|Common shares issued for consulting services valued at $1.417 per
    share, March 31, 2010                                            |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 3,529       |  |              |   | 4       |             |  |   | 4,996         |  
|Common shares issued in lieu of payment of accounts payable - All
    Sciences                                                         |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 39,625      |  |              |   | 40      |             |  |   | 31,660        |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Common shares issued for consulting and legal services valued at
    $2.087 per share, April 30, 2010                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 2,396       |  |              |   | 2       |             |  |   | 4,998         |  
|Series B Preferred Shares issued to SeaSide 88, LP, May 12, 2010                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  | 500,000                      |   |  |            | 500 |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 4,999,500     |  
|Placement Agents Fees related to sale of Convertible Preferred shares,
    May 12, 2010                                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (400,000      | )
|Legal  Fees related to Sale of Convertible Preferred Stock,
    May 12, 2010                                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (50,000       | )
|Derivative Liability - Issuance of Series B Preferred Shares                                                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (1,787,379    | )
|Common shares issued for conversion of Series B Preferred Shares at $1.88 per share, May
    12, 2010                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 319,331     |  |              |   | 319     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, May 12, 2010                                |  |                                          |           |  |                                          |   |       |                                          |  |  | (60,000                      | ) |  |            | (60 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Series B Preferred Shares,
    May 12, 2010                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 128,053       |  
|Warrants issued to Scientific Advisory Board, May 15, 2010                                                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 82,800        |  
|Common shares issued for conversion of Series B Preferred Shares at $1.51 per share, May
    26, 2010                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 398,189     |  |              |   | 398     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, May 26, 2010                                |  |                                          |           |  |                                          |   |       |                                          |  |  | (60,000                      | ) |  |            | (60 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, May 26, 2010                                                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (16,877       | )
|Common shares issued as Dividend to Seaside 88, LP at $1.64, May
    26, 2010                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 10,300      |  |              |   | 10      |             |  |   | 16,867        |  
|Derivative Liability - Retirement of Series B Preferred Shares,
    May 26, 2010                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 151,852       |  
|Common shares issued for consulting and legal services valued at
    $2.083 per share, May 31, 2010                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 2,400       |  |              |   | 2       |             |  |   | 4,998         |  
|Common shares issued for conversion of warrants to Common Stock
    at $1.00 per share, June 9, 2010                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 195,000     |  |              |   | 195     |             |  |   | 194,805       |  
|Common shares issued for conversion of Series B Preferred Shares at $1.41 per share, June
    9, 2010                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 426,721     |  |              |   | 427     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, June 9, 2010                                |  |                                          |           |  |                                          |   |       |                                          |  |  | (60,000                      | ) |  |            | (60 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, June 9, 2010                                                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (14,575       | )
|Common shares issued as Dividend to Seaside 88, LP at $1.41, June
    9, 2010                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 10,366      |  |              |   | 10      |             |  |   | 14,565        |  
|Derivative Liability - Retirement of Series B Preferred Shares,
    June 9, 2010                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 149,364       |  
|Common shares issued for consulting and legal services valued at
    $1.77 per share, June 9, 2010                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 11,300      |  |              |   | 11      |             |  |   | 19,989        |  
|Common shares issued for consulting and legal services valued at
    $1.77 per share, June 9, 2010                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 2,000       |  |              |   | 2       |             |  |   | 3,538         |  
|Common shares issued for conversion of Series B Preferred Shares at $1.59 per share, June
    23, 2010                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 377,905     |  |              |   | 378     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, June 23, 2010                               |  |                                          |           |  |                                          |   |       |                                          |  |  | (60,000                      | ) |  |            | (60 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, June 23, 2010                                                                                         |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (12,274       | )
|Common shares issued as Dividend to Seaside 88, LP at $1.59, June
    23, 2010                                                         |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 7,731       |  |              |   | 7       |             |  |   | 12,268        |  
|Derivative Liability - Retirement of Series B Preferred Shares,
    June 23, 2010                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 120,254       |  
|Common shares issued for consulting and legal services valued at
    $1.043 per share, June 30, 2010                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 2,738       |  |              |   | 2       |             |  |   | 4,998         |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Net loss                                                                                                                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Balance, June 30, 2010                                                                                                                 |  |                                          | 7,593,750 |  |                                          |   | 7,594 |                                          |  |  | 260,000                      |   |  |            | 260 |   |        |  |       |            |  |   |        |  |  |         | 133,980,471 |  |              |   | 133,981 |             |  |   | 23,116,612    |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Common shares issued for conversion of Series B Preferred Shares at $1.51 per share, July
    7, 2010                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 397,088     |  |              |   | 397     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, July 7, 2010                                |  |                                          |           |  |                                          |   |       |                                          |  |  | (60,000                      | ) |  |            | (60 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, July 7, 2010                                                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (9,973        | )
|Common shares issued as dividend to Seaside 88, LP at $1.65 per
    share, July 7, 2010                                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 6,061       |  |              |   | 6       |             |  |   | 9,967         |  
|Derivative liability - retirement of Series B Preferred Shares,
    July 7, 2010                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 116,715       |  
|Common shares issued for conversion of Series B Preferred Shares at $1.30 per share, July
    21, 2010                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 463,177     |  |              |   | 463     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, July 21, 2010                               |  |                                          |           |  |                                          |   |       |                                          |  |  | (60,000                      | ) |  |            | (60 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, July 21, 2010                                                                                         |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (7,671        | )
|Common shares issued as dividend to Seaside 88, LP at $1.32 per
    share, July 21, 2010                                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,794       |  |              |   | 6       |             |  |   | 7,665         |  
|Derivative liability - retirement of Series B Preferred Shares,
    July 21, 2010                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 113,700       |  
|Common shares issued for consulting and legal services valued at
    $2.087 per share, July 31, 2010                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 3,086       |  |              |   | 3       |             |  |   | 4,997         |  
|Common shares issued for conversion of Series B Preferred Shares at $1.14 per share, August
    4, 2010                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 526,916     |  |              |   | 527     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, August 4, 2010                              |  |                                          |           |  |                                          |   |       |                                          |  |  | (60,000                      | ) |  |            | (60 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, August 4, 2010                                                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (5,370        | )
|Common shares issued as dividend to Seaside 88, LP, at $1.14 per
    share, August 4, 2010                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,716       |  |              |   | 5       |             |  |   | 5,365         |  
|Derivative liability - retirement of Series B Preferred Shares,
    August 4, 2010                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 104,480       |  
|Warrants issued to Scientific Advisory Board, August 15, 2010                                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 45,000        |  
|Common shares issued in conversion of Series B Preferred Shares at $0.99 per share, August
    18, 2010                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 606,367     |  |              |   | 606     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, August 18, 2010                             |  |                                          |           |  |                                          |   |       |                                          |  |  | (60,000                      | ) |  |            | (60 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, August 18, 2010                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (3,068        | )
|Common shares issued as dividend to Seaside 88, LP at $0.99 per
    share, August 18, 2010                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 3,101       |  |              |   | 3       |             |  |   | 3,065         |  
|Derivative liability - retirement of Series B Preferred Shares,
    August 18, 2010                                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 104,795       |  
|Common shares issued for consulting and legal services valued at
    $1.24 per share, August 31, 2010                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,032       |  |              |   | 4       |             |  |   | 4,996         |  
|Common shares issued for conversion of Series B Preferred Shares at $0.93 per share, September
    1, 2010                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 215,332     |  |              |   | 215     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, September 1, 2010                           |  |                                          |           |  |                                          |   |       |                                          |  |  | (20,000                      | ) |  |            | (20 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, September 1, 2010                                                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (767          | )
|Common shares issued as dividend to Seaside 88, LP at $1.00 per
    share, September 1, 2010                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 766         |  |              |   | 1       |             |  |   | 766           |  
|Derivative liability - retirement of Series B Preferred Shares,
    September 1, 2010                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 34,841        |  
|Series B Preferred Shares issued to SeaSide 88, LP,  September
    21, 2010                                                            |  |                                          |           |  |                                          |   |       |                                          |  |  | 250,000                      |   |  |            | 250 |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 2,499,750     |  
|Placement Agents fees related to sale of Convertible Preferred shares,
    September 21, 2010                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (195,000      | )
|Legal fees related to sale of Convertible Preferred Stock, September
    21, 2010                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (10,000       | )
|Derivative liability - issuance of Series B Preferred Shares                                                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (328,086      | )
|Common shares issued for conversion of Series B Preferred Shares at $0.93 per share, September
    21, 2010                            |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 430,015     |  |              |   | 430     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, September 21, 2010                          |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    September 21, 2010                                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 103,012       |  
|Common shares issued for consulting and legal services valued at
    $1.07 per share, September 30, 2010                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,673       |  |              |   | 5       |             |  |   | 4,995         |  
|Common shares issued for conversion of Series B Preferred Shares at $0.87 per share, October
    5, 2010                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 460,346     |  |              |   | 460     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, October 5, 2010                             |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, on October 5, 2010                                                                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (8,055        | )
|Common shares issued as dividend to Seaside 88, LP at $0.87 per
    share, October 5, 2010                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 9,268       |  |              |   | 9       |             |  |   | 8,046         |  
|Derivative liability - Retirement of Series B Preferred Shares,
    October 5, 2010                                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 103,330       |  
|Common shares issued for conversion of Series B Preferred Shares at $0.88 per share, October
    19, 2010                              |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 452,965     |  |              |   | 453     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, October 19, 2010                            |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, October 19, 2010                                                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (6,521        | )
|Common shares issued as dividend to Seaside 88, LP at $0.88 per
    share, October 19, 2010                                            |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 7,384       |  |              |   | 7       |             |  |   | 6,514         |  
|Derivative liability - Retirement of Series B Preferred Shares,
    October 19, 2010                                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,635        |  
|Common shares issued for consulting and legal services valued at
    $1.03 per share, October 31, 2010                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,854       |  |              |   | 5       |             |  |   | 4,995         |  
|Series A Preferred Shares issued for employee stock compensation,
    November 1, 2010                                                 |  |                                          | 30,000    |  |                                          |   | 30    |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 53,903        |  
|Common shares issued for conversion of Series B Preferred Shares at $0.87 per share, November
    2, 2010                              |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 461,313     |  |              |   | 461     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, August 4, 2010                              |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, November 2, 2010                                                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (4,986        | )
|Common shares issued as dividend to Seaside 88, LP at $0.87 per
    share, November 2, 2010                                            |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,751       |  |              |   | 6       |             |  |   | 4,980         |  
|Derivative liability - retirement of Series B Preferred Shares,
    November 2, 2010                                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,104        |  
|Warrants issued to Scientific Advisory Board, November 15, 2010                                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 55,800        |  
|Common shares issued for conversion of Series B Preferred Shares at $1.16 per share, November
    16, 2010                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 345,817     |  |              |   | 346     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, November 16, 2010                           |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, November 16, 2010                                                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (3,452        | )
|Common shares issued as dividend to Seaside 88, LP at $1.16 per
    share, November 16, 2010                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 2,984       |  |              |   | 3       |             |  |   | 3,449         |  
|Derivative liability - Retirement of Series B Preferred Shares,
    November 16, 2010                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,187        |  
|Common shares issued for conversion of Series B Preferred Shares at $1.35 per share, November
    30, 2010                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 310,566     |  |              |   | 311     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, November 30, 2010                           |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, November 30, 2010                                                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (1,918        | )
|Common shares issued as dividend to Seaside 88, LP at $1.35 per
    share, November 30, 2010                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 1,417       |  |              |   | 1       |             |  |   | 1,917         |  
|Derivative liability - Retirement of Series B Preferred Shares,
    November 30, 2010                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,449        |  
|Common shares issued for consulting and legal services valued at
    $1.46 per share, November 30, 2010                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 3,425       |  |              |   | 3       |             |  |   | 4,997         |  
|Common shares issued for conversion of warrants to Common Stock
    at $1.00 per share, December 10, 2010                              |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 25,000      |  |              |   | 25      |             |  |   | 24,975        |  
|Common shares issued as compensation pursuant to S-8 at $1.28 per share, December 10, 2010                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 50,000      |  |              |   | 50      |             |  |   | 63,950        |  
|Common shares issued for conversion of Series B Preferred Shares at $1.10 per share, December
    14, 2010                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 90,840      |  |              |   | 91      |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, December 14, 2010                           |  |                                          |           |  |                                          |   |       |                                          |  |  | (10,000                      | ) |  |            | (10 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, December 14 2010                                                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (384          | )
|Common shares issued as Dividend to Seaside 88, LP, at $1.10 per
    share, December 14, 2010                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 348         |  |              |   | -       |             |  |   | 384           |  
|Derivative liability - retirement of Series B Preferred Shares,
    December 14, 2010                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 17,438        |  
|Series B Preferred Shares issued to SeaSide 88, LP, December 21,
    2010                                                              |  |                                          |           |  |                                          |   |       |                                          |  |  | 250,000                      |   |  |            | 250 |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 2,499,750     |  
|Placement Agents fees related to sale of Convertible Preferred shares,
    December 21, 2010                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (200,000      | )
|Common shares issued for consulting and legal services valued at
    $1.32 per share, December 31, 2010                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,545       |  |              |   | 5       |             |  |   | 5,995         |  
|Adjustment                                                                                                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   | 33      |             |  |   |               |  
|Common shares issued for conversion of Series B Preferred Shares at $1.16 per share, January
    3, 2011                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 343,796     |  |              |   | 344     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, January 3, 2011                             |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, January 3, 2011                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (8,904        | )
|Common shares issued as dividend to Seaside 88, LP at $1.16 per
    share, January 3, 2011                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 7,653       |  |              |   | 8       |             |  |   | 8,896         |  
|Derivative liability - retirement of Series B Preferred Shares,
    January 3, 2011                                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 73,532        |  
|Common shares issued for conversion of Series B Preferred Shares at $1.26 per share, January
    17, 2011                              |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 317,965     |  |              |   | 318     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, January 17, 2011                            |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, January 17, 2011                                                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (8,055        | )
|Common shares issued as dividend to Seaside 88, LP at $1.26 per
    share, January 17, 2011                                            |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 6,403       |  |              |   | 6       |             |  |   | 8,049         |  
|Derivative liability - retirement of Series B Preferred Shares,
    January 17, 2011                                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 70,882        |  
|Common shares issued for conversion of Series B Preferred Shares at $1.12 per share, January
    31, 2011                              |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 356,422     |  |              |   | 356     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, January 31, 2011                            |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, January 31, 2011                                                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (6,521        | )
|Common shares issued as dividend to Seaside 88, LP at $1.24 per
    share, January 31, 2011                                            |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,271       |  |              |   | 5       |             |  |   | 6,516         |  
|Derivative liability - retirement ofSeries B Preferred Shares, January
    31, 2011                                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 72,432        |  
|Common shares issued for consulting and legal services valued at
    $1.47 per share, January 31, 2011                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,087       |  |              |   | 4       |             |  |   | 5,996         |  
|Common shares issued for conversion of warrants at $1.00 per share, February 4, 2011                                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 25,000      |  |              |   | 25      |             |  |   | 24,975        |  
|Common shares issued for conversion of Series B Preferred Shares at $1.08 per share, February
    14, 2011                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 370,017     |  |              |   | 370     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, February 14, 2011                           |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, February 14, 2011                                                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (4,986        | )
|Common shares issued as dividend to Seaside 88, LP, at $1.08 per
    share, February 14, 2011                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,613       |  |              |   | 5       |             |  |   | 4,981         |  
|Derivative liability - retirement of Series B Preferred Shares,
    February 14, 2011                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 71,699        |  
|Warrants issued to Scientific Advisory Board, Feburary 15, 2011                                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 54,000        |  
|Common shares issued for conversion of Series B Preferred Shares at $0.99 per share, February
    28, 2011                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 405,610     |  |              |   | 406     |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    February 28, 2011                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 71,490        |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, February 28, 2011                           |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, February 28, 2011                                                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (3,452        | )
|Common shares issued as dividend to Seaside 88, LP at $0.99 per
    shares, February 28, 2011                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 3,500       |  |              |   | 4       |             |  |   | 3,448         |  
|Common shares issued for consulting and legal services valued at
    $1.22 per share, February 28, 2011                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,902       |  |              |   | 5       |             |  |   | 5,995         |  
|Common shares issued for employee stock compensation  at $1.32
    per share, March 3, 2011                                            |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 250,000     |  |              |   | 250     |             |  |   | 316,000       |  
|Series A Preferred Shares issued for employee stock compensation,
    March 3, 2011                                                    |  |                                          | 593,750   |  |                                          |   | 594   |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 1,364,036     |  
|Common shares issued for conversion of Series B Preferred Shares at $1.09 per share, March
    14, 2011                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 367,274     |  |              |   | 367     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, March 14, 2011                              |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, March 14, 2011                                                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (1,918        | )
|Common shares issued as Dividend to Seaside 88, LP at $1.09 per
    shares, March 14, 2011                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 1,761       |  |              |   | 2       |             |  |   | 1,916         |  
|Derivative Liability - Retirement of Series B Preferred Shares,
    March 14, 2011                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 70,566        |  
|Common shares issued for conversion of Series B Preferred Shares at $1.11 per share, March
    28, 2011                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 89,986      |  |              |   | 90      |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, March 28, 2011                              |  |                                          |           |  |                                          |   |       |                                          |  |  | (10,000                      | ) |  |            | (10 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Dividend paid to Seaside 88, LP, March 28, 2011                                                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (384          | )
|Common shares issued as dividend to Seaside 88, LP, at $1.11 per
    share, March 28, 2011                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 345         |  |              |   | -       |             |  |   | 384           |  
|Derivative liability - retirement of Series B Preferred Shares,
    March 28, 2011                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 17,525        |  
|Common shares issued for consulting and legal services valued at
    $1.28 per share, March 31, 2011                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,680       |  |              |   | 5       |             |  |   | 5,995         |  
|Common shares issued for conversion of warrants to common stock
    at $1.00 per share, April 10, 2011                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 10,000      |  |              |   | 10      |             |  |   | 9,990         |  
|Series B Preferred Shares issued to SeaSide 88, LP, April 18, 2011                                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  | 250,000                      |   |  |            | 250 |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 2,499,750     |  
|Placement Agents fees related to sale of Convertible Preferred shares,
    April 18, 2011                                              |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (160,000      | )
|Legal  fees related to Sale of Convertible Preferred Stock,
    April 18, 2011                                                         |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (25,000       | )
|Derivative liability - issuance of Series B Preferred Shares                                                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (429,725      | )
|Common shares issued for conversion of Series B Preferred Shares at $1.28 per share, April
    18, 2011                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 312,163     |  |              |   | 312     |             |  |   | (272          | )
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, April 18, 2011                              |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    April 18, 2011                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,756        |  
|Common shares issued for consulting and legal services valued at
    $1.47 per share, April 30, 2011                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,087       |  |              |   | 4       |             |  |   | 5,996         |  
|Common shares issued for conversion of Series B Preferred Shares at $1.18 per share, May
    2, 2011                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 339,726     |  |              |   | 340     |             |  |   | (300          | )
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, May 2, 2011                                 |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    May 2, 2011                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,941        |  
|Dividend paid to Seaside 88, LP, May 2, 2011                                                                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (8,055        | )
|Common shares issued as dividend to Seaside 88, LP at $1.18 per
    shares, May 2, 2011                                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 6,841       |  |              |   | 7       |             |  |   | 8,048         |  
|Warrants issued to Scientific Advisory Board, May 15, 2011                                                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 50,400        |  
|Common shares issued for conversion of Series B Preferred Shares at $1.19 per share, May
    16, 2011                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 336,501     |  |              |   | 337     |             |  |   | (297          | )
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, May 16, 2011                                |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    May 16, 2011                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,194        |  
|Dividend paid to Seaside 88, LP, May 16, 2011                                                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (6,521        | )
|Common shares issued as dividend to Seaside 88, LP at $1.20 per
    shares, May 16, 2011                                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,438       |  |              |   | 5       |             |  |   | 6,516         |  
|Common shares issued for conversion of Series B Preferred Shares at $1.23 per share, May
    30, 2011                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 326,480     |  |              |   | 326     |             |  |   | (286          | )
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, May 30, 2011                                |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    May 30, 2011                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,464        |  
|Dividend paid to Seaside 88, LP, May 30, 2011                                                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (4,986        | )
|Common shares issued as Dividend to Seaside 88, LP at $1.23 per
    share, May 30, 2011                                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,070       |  |              |   | 4       |             |  |   | 4,982         |  
|Common shares issued for consulting and legal services valued at
    $1.47 per share, May 31, 2011                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,087       |  |              |   | 4       |             |  |   | 5,996         |  
|Common shares issued for conversion of Series B Preferred Shares at $1.18 per share, June
    13, 2011                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 339,971     |  |              |   | 340     |             |  |   | (300          | )
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, June 13, 2011                               |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    June 13, 2011                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,727        |  
|Dividend paid to Seaside 88, LP, June 13, 2011                                                                                         |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (3,452        | )
|Common shares issued as Dividend to Seaside 88, LP at $1.18 per
    share, June 13, 2011                                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 2,934       |  |              |   | 3       |             |  |   | 3,449         |  
|Common shares issued for conversion of Series B Preferred Shares at $1.02 per share, June
    27, 2011                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 391,850     |  |              |   | 392     |             |  |   | (352          | )
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, June 27, 2011                               |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Series B Preferred Share, June
    27, 2011                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,973        |  
|Dividend paid to Seaside 88, LP, June 27, 2011                                                                                         |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (1,918        | )
|Common shares issued as Dividend to Seaside 88, LP at $1.10 per
    share, June 27, 2011                                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 1,741       |  |              |   | 2       |             |  |   | 1,916         |  
|Common shares issued for consulting and legal services valued at
    $1.22 per share, June 30, 2011                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,902       |  |              |   | 5       |             |  |   | 5,995         |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Net loss                                                                                                                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Balance, June 30, 2011                                                                                                                 |  |                                          | 8,217,500 |  |                                          |   | 8,218 |                                          |  |  | 10,000                       |   |  |            | 10  |   |        |  | -     |            |  |   | -      |  |  |         | 143,548,494 |  |              |   | 143,582 |             |  |   | 33,235,990    |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Common shares issued for conversion of Series B Preferred Shares at $1.11 per share, July
    11, 2011                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 89,986      |  |              |   | 90      |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, July 11, 2011                               |  |                                          |           |  |                                          |   |       |                                          |  |  | (10,000                      | ) |  |            | (10 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    July 11, 2011                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 17,881        |  
|Dividend to Seaside 88, LP, paid on July 11, 2011                                                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (381          | )
|Common shares issued as dividend to Seaside 88, LP at $1.18 per
    share, July 11, 2011                                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 345         |  |              |   | -       |             |  |   | 381           |  
|Series B Preferred Shares issued to SeaSide 88, LP, on July 26,
    2011                                                               |  |                                          |           |  |                                          |   |       |                                          |  |  | 250,000                      |   |  |            | 250 |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 2,499,750     |  
|Placement Agents fees related to sale of Convertible Preferred shares,
    July 26, 2011                                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (150,000      | )
|Derivative liability - issuance of Series B Preferred Shares                                                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (429,768      | )
|Legal  Fees related to Sale of Convertible Preferred Stock,
    July 26, 2011                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (6,250        | )
|Common shares issued in conversion of Series B Preferred Shares
    to common stock at $1.18 per share, July 26, 2011                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 377,800     |  |              |   | 378     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, July 26, 2011                               |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    July 26, 2011                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,425        |  
|Common shares issued for consulting and legal services valued at
    $1.26 per share, July 31, 2011                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 4,762       |  |              |   | 5       |             |  |   | 5,995         |  
|Warrants issued to Scientific Advisory Board, August 15, 2011                                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 56,400        |  
|Common shares issued for conversion of Series B Preferred Shares at $0.92 per share, August
    8, 2011                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 437,187     |  |              |   | 437     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, August 8, 2011                              |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    August 8, 2011                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,193        |  
|Dividend to Seaside 88, LP, paid on August 8, 2011                                                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (8,055        | )
|Common shares issued as Dividend to Seaside 88, LP at $0.98 per
    share, August 8, 2011                                              |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 8,205       |  |              |   | 8       |             |  |   | 8,047         |  
|Common shares issued for conversion of Series B Preferred Shares at $0.95 per share, August
    23, 2011                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 419,829     |  |              |   | 420     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, August 23, 2011                             |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    August 23, 2011                                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,351        |  
|Dividend paid to Seaside 88, LP, August 23, 2011                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (6,521        | )
|Common shares issued as Dividend to Seaside 88, LP at $0.95 per
    share, August 23, 2011                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 6,844       |  |              |   | 7       |             |  |   | 6,514         |  
|Common shares issued for consulting and legal services valued at
    $1.14 per share, August 31, 2011                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,263       |  |              |   | 5       |             |  |   | 5,995         |  
|Common shares issued for conversion of Series B Preferred Shares at $0.95 per share, September
    6, 2011                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 422,873     |  |              |   | 423     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, September 6, 2011                           |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Shares,
    September 6, 2011                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,887        |  
|Dividend paid to Seaside 88, LP, September 6, 2011                                                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (4,986        | )
|Common shares issued as Dividend to Seaside 88, LP at $0.95 per
    share, September 6, 2011                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,264       |  |              |   | 5       |             |  |   | 4,981         |  
|Common shares issued in conversion of Series B Preferred Shares at $0.94 per share, September
    19, 2011                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 427,652     |  |              |   | 428     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, September 19, 2011                          |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative liability - retirement of Series B Preferred Share, September
    19, 2011                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,970        |  
|Dividend to Seaside 88, LP, paid on September 19, 2011                                                                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (3,452        | )
|Common shares issued as Dividend to Seaside 88, LP at $0.94 per
    share, September 19, 2011                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 3,691       |  |              |   | 3       |             |  |   | 3,449         |  
|Common shares issued for consulting and legal services valued at
    $1.07 per share, September 30, 2011                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,607       |  |              |   | 6       |             |  |   | 5,994         |  
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $.78 per share, .001 par value, on October 3, 2011     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 514,311     |  |              |   | 514     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on October 3, 2011           |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on October
    3, 2011                                                         |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,496        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.85 on October 3, 2011                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 2,270       |  |              |   | 2       |             |  |   | 1,916         |  
|Dividend to Seaside 88, LP, paid on October 3, 2011                                                                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (1,918        | )
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.69 per share, .001 par value, on October 17, 2011   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 144,484     |  |              |   | 144     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on October 17, 2011          |  |                                          |           |  |                                          |   |       |                                          |  |  | (10,000                      | ) |  |            | (10 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on October
    17, 2011                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 17,790        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.75 on October 17, 2011                              |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 510         |  |              |   | 1       |             |  |   | 383           |  
|Dividend to Seaside 88, LP, paid on October 17, 2011                                                                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (384          | )
|Shares issued for consulting and legal services rendered at $0..92
    per share on October 31, 2011                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 6,537       |  |              |   | 5       |             |  |   | 5,995         |  
|Series B Preferred Shares issued to SeaSide 88, LP, $.001 par value
    on November 1, 2011                                            |  |                                          |           |  |                                          |   |       |                                          |  |  | 250,000                      |   |  |            | 250 |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 2,499,750     |  
|Placement Agents Fees related to sale of Convertible Preferred shares
    on November 1, 2011                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (160,000      | )
|Derivative Liability - Issuance of Preferred Series B                                                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (429,804      | )
|Legal  Fees related to Sale of Convertible Preferred Stock
    November 1, 2011                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (25,000       | )
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.78 per share, .001 par value, on November 1, 2011   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 511,787     |  |              |   | 512     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on November 2, 2011          |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on November
    1, 2011                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,297        |  
|Warrants issued to Scientific Advisory Board on November 15, 2011                                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 56,400        |  
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.69 per share, .001 par value, on November 15, 2011  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 578,595     |  |              |   | 579     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on November  15, 2011        |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on November
    15, 2011                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,411        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0..73 onNovember 15, 2011                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 10,311      |  |              |   | 10      |             |  |   | 7,469         |  
|Dividend to Seaside 88, LP, paid on November 15, 2011                                                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (7,479        | )
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.62 per share, .001 par value, on November 29, 2011  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 642,735     |  |              |   | 643     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on November  29, 2011        |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on November
    29, 2011                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,591        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.64 on November 29, 2011                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 10,139      |  |              |   | 10      |             |  |   | 6,511         |  
|Dividend to Seaside 88, LP, paid on November 29, 2011                                                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (6,521        | )
|Shares issued for consulting and legal services rendered at $0.81
    per share on November 30, 2011                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 7,373       |  |              |   | 7       |             |  |   | 5,993         |  
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.53 per share, .001 par value, on December 13, 2011  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 751,315     |  |              |   | 751     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on December 13, 2011         |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on December
    13, 2011                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,753        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.57 on December 13, 2011                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 8,798       |  |              |   | 9       |             |  |   | 4,977         |  
|Dividend to Seaside 88, LP, paid on December 13, 2011                                                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (4,986        | )
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.51 per share, .001 par value, on December 27, 2011  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 796,785     |  |              |   | 798     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on December 27, 2011         |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on December
    27, 2011                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,965        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.57 on December 27, 2011                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 6,818       |  |              |   | 7       |             |  |   | 3,443         |  
|Dividend to Seaside 88, LP, paid on December 27, 2011                                                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (3,452        | )
|Shares issued for consulting and legal services rendered at $0.64
    per share on December 31, 2011                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 9,403       |  |              |   | 9       |             |  |   | 5,991         |  
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $.51 per share, .001 par value, on January 10, 2012    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 788,053     |  |              |   | 788     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on January 10,2012           |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on January
    10, 2012                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,222        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.51 onJanuary 10, 2012                               |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 3,742       |  |              |   | 4       |             |  |   | 1,914         |  
|Dividend to Seaside 88, LP, paid on January 10, 2012                                                                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (1,918        | )
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.48 per share, .001 par value, on January 24, 2012   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 208,546     |  |              |   | 209     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on January 24, 2012          |  |                                          |           |  |                                          |   |       |                                          |  |  | (10,000                      | ) |  |            | (10 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on January
    24, 2012                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,883        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.49 on January 24, 2012                              |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 786         |  |              |   |         |             |  |   | 383           |  
|Dividend to Seaside 88, LP, paid on January 24, 2012                                                                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (384          | )
|Shares issued for consulting and legal services rendered at $0.58
    per share on January 31, 2012                                    |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 10,367      |  |              |   | 10      |             |  |   | 5,990         |  
|Series B Preferred Shares issued to SeaSide 88, LP,  $.001
    par value on February 8, 2012                                           |  |                                          |           |  |                                          |   |       |                                          |  |  | 250,000                      |   |  |            | 250 |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 2,499,750     |  
|Placement Agents Fees related to sale of Convertible Preferred shares
    on February 8, 2012                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (150,000      | )
|Derivative Liability - Issuance of Preferred Series B                                                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (430,283      | )
|Legal  Fees related to Sale of Convertible Preferred Stock
    February 8, 2012                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (6,250        | )
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.56 per share, .001 par value, on February 8, 2012   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 717,142     |  |              |   | 717     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on  February 8, 2012         |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on 
    February 8, 2012                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,169        |  
|Warrants issued to Scientific Advisory Board on February 15, 2012                                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 51,000        |  
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.69 per share, .001 par value, on  February 22, 2012 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 576,062     |  |              |   | 576     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on February 22, 2012         |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on February
    22, 2012                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,424        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.69 on February 22, 2012                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 11,600      |  |              |   | 12      |             |  |   | 7,467         |  
|Dividend to Seaside 88, LP, paid on February 22, 2012                                                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (7,479        | )
|Shares issued for consulting and legal services rendered at $0.77
    per share on February 29, 2012                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 7,767       |  |              |   | 8       |             |  |   | 5,992         |  
|Common shares issued for employee stock compensation  at $.73
    per share, March 3, 2012                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 250,000     |  |              |   | 250     |             |  |   | 181,624       |  
|Series A Preferred Shares issued for employee stock compensation,
    March 3, 2012                                                    |  |                                          | 593,750   |  |                                          |   | 594   |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 633,814       |  
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.64 per share, .001 par value, on March 07, 2012     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 628,289     |  |              |   | 628     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on March 7, 2012             |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on 
    March 7, 2012                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,602        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.64 on March 7, 2012                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 10,242      |  |              |   | 10      |             |  |   | 6,511         |  
|Dividend to Seaside 88, LP, paid on March 7, 2012                                                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (6,521        | )
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.63 per share, .001 par value, on March 21, 2012     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 635,991     |  |              |   | 636     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on March  21, 2012           |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on March
    21, 2012                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 68,862        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.64 on March 21, 2012                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 7,812       |  |              |   | 8       |             |  |   | 4,978         |  
|Dividend to Seaside 88, LP, paid on March 21, 2012                                                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (4,986        | )
|Shares issued for consulting and legal services rendered at $0.78
    per share on March 31, 2012                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 7,728       |  |              |   | 8       |             |  |   | 5,992         |  
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $.61 per share, .001 par value, on April 4, 2012       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 661,496     |  |              |   | 661     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on April 4, 2012             |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on April
    4, 2012                                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,098        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.61 on April 4, 2012                                 |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 5,709       |  |              |   | 6       |             |  |   | 3,446         |  
|Dividend to Seaside 88, LP, paid on April 4, 2012                                                                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (3,452        | )
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.51 per share, .001 par value, on April 18, 2012     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 785,453     |  |              |   | 785     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on April 18, 2012            |  |                                          |           |  |                                          |   |       |                                          |  |  | (40,000                      | ) |  |            | (40 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on April
    18, 2012                                                          |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,224        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.54 on April 18, 2012                                |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 3,579       |  |              |   | 4       |             |  |   | 1,914         |  
|Dividend to Seaside 88, LP, paid on April 18, 2012                                                                                     |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (1,918        | )
|Shares issued for consulting and legal services rendered at $0.63
    per share on April 30, 2012                                      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 9,547       |  |              |   | 9       |             |  |   | 5,990         |  
|Shares issued in conversion of Series B Preferred Shares to Common
    Stock at $0.50 per share, .001 par value, on May 2, 2012        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 198,354     |  |              |   | 199     |             |  |   |               |  
|Retirement of Series B Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on  May 2, 2012              |  |                                          |           |  |                                          |   |       |                                          |  |  | (10,000                      | ) |  |            | (10 | ) |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series B on 
    May 2, 2012                                                            |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 69,892        |  
|Warrants issued to Scientific Advisory Board on May 15, 2012                                                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 47,400        |  
|Shares issued as Dividend to Seaside 88, LP, .001 par value common
    stock at $0.51 on May 2, 2012                                   |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 754         |  |              |   | 1       |             |  |   | 383           |  
|Dividend to Seaside 88, LP, paid on May 2, 2012                                                                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (384          | )
|Shares issued for consulting and legal services rendered at $0.67
    per share on May 31, 2012                                        |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 8,962       |  |              |   | 9       |             |  |   | 5,991         |  
|Series C Preferred Shares issued to SeaSide 88, LP,  $.001
    par value on June 28, 2012                                              |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  | 2,500 |            |  |   | 3      |  |  |         |             |  |              |   |         |             |  |   | 2,499,997     |  
|Placement Agents Fees related to sale of Convertible Preferred shares
    on June 28, 2012                                             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (150,000      | )
|Derivative Liability - Issuance of Preferred Series C                                                                                  |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (1,090,017    | )
|Legal  Fees related to Sale of Convertible Preferred Stock
    June 28, 2012                                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | (25,000       | )
|Sharees of Series A Preferred issued for legal services rendered                                                                       |  |                                          | 10,000    |  |                                          |   | 10    |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 3,277         |  
|Shares issued in conversion of Series C Preferred Shares to Common
    Stock at $0.49 per share, .001 par value, on June 28, 2012      |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 298,472     |  |              |   | 298     |             |  |   |               |  
|Retirement of Series C Preferred Shares converted into common stock
    by SeaSide 88, LP, .001 par value on June 28, 2012             |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  | (147  | )          |  |   | -      |  |  |         |             |  |              |   |         |             |  |   |               |  
|Derivative Liability - Retirement of Preferred Series C on June
    28, 2012                                                           |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 63,704        |  
|Series A Preferred Shares issued for employee stock compensation,
    June 28, 2012                                                    |  |                                          | 1,050,000 |  |                                          |   | 1,050 |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   | 344,122       |  
|Shares issued for consulting and legal services rendered at $0.61
    per share on June 30, 2012                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         | 9,867       |  |              |   | 10      |             |  |   | 5,990         |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Net loss for the year ended June 30, 2012                                                                                              |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|                                                                                                                                       |  |                                          |           |  |                                          |   |       |                                          |  |  |                              |   |  |            |     |   |        |  |       |            |  |   |        |  |  |         |             |  |              |   |         |             |  |   |               |  
|Balance, June 30, 2012                                                                                                                 |  |                                          | 9,871,250 |  |                                          | $ | 9,872 |                                          |  |  | -                            |   |  | $          | -   |   |        |  | 2,353 |            |  | $ | 3      |  |  |         | 155,612,293 |  |              | $ | 155,644 |             |  | $ | 43,108,790    |  



See accompanying notes to the financial
statements



F-6







Nanoviricides, Inc.



(A Development Stage Company)

Statements of Cash Flows



|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   | For the Period from |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------- | ---------- | - | ------------------- | - | ---------- | ------------------- |  | - | ------------------- | -
|                                                                                                                                     |  | For the Fiscal Year |            |   | For the Fiscal Year |   |            | For the Fiscal Year |  |   | May 12, 2005        |  
|                                                                                                                                     |  | Ended               |            |   | Ended               |   |            | Ended               |  |   | (inception) through |  
|                                                                                                                                     |  | June 30, 2012       |            |   | June 30, 2011       |   |            | June 30, 2010       |  |   | June 30, 2012       |  
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|CASH FLOWS FROM OPERATING
    ACTIVITIES:                                                                                            |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|Net loss                                                                                                                             |  | $                   | (6,207,207 | ) |                     | $ | (6,477,165 | )                   |  | $ | (4,744,208          | )
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|Adjustments to reconcile
    net loss to net cash used in operating activities                                                       |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|Preferred shares issued
    for license                                                                                              |  |                     | -          |   |                     |   | -          |                     |  |   | 7,000               |  
|Preferred shares issued as compensation                                                                                              |  |                     | 982,867    |   |                     |   | -          |                     |  |   | 1,220,330           |  
|Common shares and warrants
    issued for services                                                                                   |  |                     | 253,873    |   |                     |   | 1,865,815  |                     |  |   | 467,122             |  
|Warrants granted to scientific
    advisory board                                                                                    |  |                     | 211,197    |   |                     |   | 205,200    |                     |  |   | 204,000             |  
|Amortization of deferred
    compensation                                                                                            |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|Depreciation                                                                                                                         |  |                     | 210,877    |   |                     |   | 518,968    |                     |  |   | 82,788              |  
|Amortization                                                                                                                         |  |                     | 8,776      |   |                     |   | 8,774      |                     |  |   | 7,501               |  
|Change in fair value
    of derivative liability                                                                                     |  |                     | 172,251    |   |                     |   | 62,049     |                     |  |   | (192,763            | )
|Amortization of deferred
    financing expenses                                                                                      |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|Discount convertible
    debentures                                                                                                  |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|Beneficial conversion
    feature of convertible debentures                                                                          |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|Changes in operating
    assets and liabilities:                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|Prepaid expenses                                                                                                                     |  |                     | 18,120     |   |                     |   | (41,022    | )                   |  |   | 38,273              |  
|Other current assets                                                                                                                 |  |                     | -          |   |                     |   | 209,902    |                     |  |   | (108,592            | )
|Deferred expenses                                                                                                                    |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|Accounts payable - trade                                                                                                             |  |                     | 158,829    |   |                     |   | (48,091    | )                   |  |   | 37,453              |  
|Accounts payable - related
    parties                                                                                               |  |                     | (97,274    | ) |                     |   | (730,638   | )                   |  |   | 892,624             |  
|Accrued expenses                                                                                                                     |  |                     | 69,705     |   |                     |   | (58,543    | )                   |  |   | 50,629              |  
|Accrued
    payroll to officers and related payroll tax expense                                                                      |  |                     | -          |   |                     |   | (22,917    | )                   |  |   | (9,679              | )
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|NET
    CASH USED IN OPERATING ACTIVITIES                                                                                            |  |                     | (4,217,986 | ) |                     |   | (4,507,668 | )                   |  |   | (2,047,522          | )
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|CASH FLOWS FROM INVESTING
    ACTIVITIES:                                                                                            |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|Purchase of property
    and equipment                                                                                               |  |                     | (23,352    | ) |                     |   | (152,961   | )                   |  |   | (561,270            | )
|Purchase of trademark                                                                                                                |  |                     | (35,200    | ) |                     |   | (41,081    | )                   |  |   | (183,509            | )
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|NET CASH USED IN INVESTING
    ACTIVITIES                                                                                            |  |                     | (58,552    | ) |                     |   | (194,042   | )                   |  |   | (744,779            | )
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|CASH FLOWS FROM FINANCING
    ACTIVITIES:                                                                                            |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|Proceeds from issuance
    of Convertible Preferred Series B stock, net                                                              |  |                     | 7,002,500  |   |                     |   | 6,910,000  |                     |  |   | 4,550,000           |  
|Proceeds from issuance
    of Convertible Preferred Series C stock, net                                                              |  |                     | 2,325,000  |   |                     |   | -          |                     |  |   | -                   |  
|Proceeds from issuance
    of common stock and warrants in connection with private placements of common stock, net of issuance costs |  |                     | -          |   |                     |   | -          |                     |  |   | 1,432,252           |  
|Proceeds from exercise
    of stock options                                                                                          |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|Proceeds from exercise of warrants                                                                                                   |  |                     | -          |   |                     |   | 60,000     |                     |  |   | 2,076,340           |  
|Collection
    of stock subscriptions received                                                                                       |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|NET
    CASH PROVIDED BY FINANCING ACTIVITIES                                                                                        |  |                     | 9,327,500  |   |                     |   | 6,970,000  |                     |  |   | 8,058,592           |  
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|NET CHANGE IN CASH                                                                                                                   |  |                     | 5,050,962  |   |                     |   | 2,268,290  |                     |  |   | 5,266,291           |  
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|Cash at beginning of
    period                                                                                                      |  |                     | 9,224,023  |   |                     |   | 6,955,733  |                     |  |   | 1,689,442           |  
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|Cash at end of period                                                                                                                |  | $                   | 14,274,985 |   |                     | $ | 9,224,023  |                     |  | $ | 6,955,733           |  
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|SUPPLEMENTAL DISCLOSURE
    OF CASH FLOWS INFORMATION:                                                                               |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|Interest
    paid                                                                                                                    |  | $                   | -          |   |                     | $ | -          |                     |  | $ | -                   |  
|Income
    tax paid                                                                                                                  |  | $                   | -          |   |                     | $ | -          |                     |  | $ | -                   |  
|                                                                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|NON CASH FINANCING AND
    INVESTING ACTIVITIES:                                                                                     |  |                     |            |   |                     |   |            |                     |  |   |                     |  
|Common stock issued for
    services rendered                                                                                        |  | $                   | 253,873    |   |                     | $ | 447,250    |                     |  | $ | 467,122             |  
|Preferred stock issued
    as compensation                                                                                           |  |                     | 982,867    |   |                     |   | 1,418,585  |                     |  |   | 1,220,330           |  
|Stock options issued
    to the officers as compensation                                                                             |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|Stock warrants granted
    to scientific advisory board                                                                              |  |                     | 211,197    |   |                     |   | 205,200    |                     |  |   | 204,000             |  
|Stock warrants granted
    to brokers                                                                                                |  |                     | -          |   |                     |   | -          |                     |  |   | 3,563               |  
|Common stock issued for
    interest on debentures                                                                                   |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|Shares of common stock
    issued in connection with debenture offering                                                              |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|Common stock issued upon
    conversion of convertible debentures                                                                    |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|Common stock issued upon
    conversion of Series B Preferred Stock                                                                  |  |                     | 7,920,630  |   |                     |   | 10,000,000 |                     |  |   | 2,400,000           |  
|Common stock issued upon
    conversion of Series C Preferred Stock                                                                  |  |                     | 298,472    |   |                     |   | -          |                     |  |   | -                   |  
|Common stock issued for
    dividends on Series B Preferred Stock                                                                    |  |                     | 79,467     |   |                     |   | 126,644    |                     |  |   | 28,397              |  
|Debt discount related
    to beneficial conversion feature of convertible debt                                                       |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  
|Stock Warrants issued
    in connection with Private Placement                                                                       |  |                     | -          |   |                     |   | -          |                     |  |   | 5,097,300           |  
|Common stock issued for
    accounts payable                                                                                         |  |                     | -          |   |                     |   | -          |                     |  |   | 56,900              |  
|Common
    stock issued for equipment                                                                                                |  |                     | -          |   |                     |   | -          |                     |  |   | -                   |  



See accompanying notes to the financial
statements



F-7













NANOVIRICIDES, INC.

(A DEVELOPMENT STAGE COMPANY)

June 30, 2012, 2011 and 2010

NOTES TO FINANCIAL STATEMENTS



Note 1 - Organization and Nature of
Business



NanoViricides, Inc. was incorporated under
the laws of the State of Colorado on July 25, 2000 as Edot-com.com, Inc.and was organized for the purpose of conducting
Internet retail sales.  On April 1, 2005, Edot-com.com, Inc.was incorporated under the laws of the State of Nevada
for the purpose of re-domiciling the Company as a Nevada corporation.  On May 12, 2005, the corporations were merged
and Edot-com.com, Inc.,the Nevada corporation, became the surviving entity.



On June 1, 2005, Edot-com.com, Inc. (“ECMM”)
acquired Nanoviricide, Inc., a privately owned Florida corporation (“NVI”), pursuant to an Agreement and Plan of Share
Exchange (the “Exchange”).  Nanoviricide, Inc. was incorporated under the laws of the State of Florida on
May 12, 2005.



Pursuant to the terms of the Exchange,
ECMM acquired NVI in exchange for an aggregate of 80,000,000 newly issued shares of ECMM common stock resulting in an aggregate
of 100,000,000 shares of ECMM common stock issued and outstanding.  NVI then became a wholly-owned subsidiary of ECMM.
The ECMM shares were issued to the NVI shareholders on a pro rata basis, on the basis of 4,000 shares of the Company’s common
stock for each share of NVI common stock held by such NVI shareholder at the time of the Exchange.



As a result of the Exchange transaction
the former NVI stockholders held approximately 80% of the voting capital stock of the Company immediately after the Exchange.  For
financial accounting purposes, this acquisition was a reverse acquisition of the Company by NVI, under the purchase method of accounting,
and was treated as a recapitalization with NVI as the acquirer. Accordingly, the financial statements have been prepared to give
retroactive effect to May 12, 2005 (date of inception), of the reverse acquisition completed on June 01, 2005, and represent the
operations of NVI.



On June 28, 2005, NVI was merged into its
parent ECMM and the separate corporate existence of NVI ceased.   Effective on the same date, Edot-com.com, Inc.
changed its name to NanoViricides, Inc. and its stock symbol to “NNVC”, respectively.  The Company
is considered a development stage company at this time.



NanoViricides,  Inc.
(the “Company”), is a nano-biopharmaceutical company whose business goals are to discover, develop and
commercialize therapeutics to advance the care of patients suffering from life-threatening viral infections. We are a
development stage company with several drugs in various stages of early development. Our drugs are based on several patents,
patent applications, provisional patent applications, and other proprietary intellectual property held by TheraCour Pharma,
Inc. (“TheraCour”), to which we have the necessary licenses in perpetuity for the treatment of the following
human viral diseases: Human Immunodeficiency Virus (HIV/AIDS), Hepatitis B Virus (HBV), Hepatitis C Virus (HCV), Herpes
Simplex Virus (HSV), Influenza and Asian Bird Flu Virus. On February 15, 2010 the Company approved an Additional License
Agreement with TheraCour Pharma, Inc. (“TheraCour”).  Pursuant to the exclusive Additional License
Agreement, the Company was granted exclusive licenses, in perpetuity, for technologies, developed by TheraCour, for the
development of drug candidates for the treatment of Dengue viruses, Ebola/Marburg viruses, Japanese Encephalitis, viruses
causing viral Conjunctivitis (a disease of the eye) and Ocular Herpes.  As consideration for obtaining these
exclusive licenses, we agreed to pay a onetime licensing fee equal to 7,000,000 shares of the Company’s Series A
Convertible Preferred Stock (the “Series A Preferred Stock”).  The Series A Preferred Stock is
convertible, only upon sale or merger of the company, or the sale of or license of substantially all of the Company’s
intellectual property, into shares of the Company’s common stock at the rate of three and one-half shares of common
stock for each share of Series A Preferred Stock.  The Series A Preferred Stock has a preferred voting preference
at the rate of nine  votes per share. The Preferred Series A do not contain any rights to dividends; have no liquidation
preference and are not to be amended without the holders approval. The 7,000,000 shares were valued at the par value or
$7,000.



We focus our research and clinical programs
on specific anti-viral solutions. We are seeking to add to our existing portfolio of products through our internal discovery and
clinical development programs and through an in-licensing strategy. To date, the Company has not developed any commercial products.



F-8







Note 2 - Summary of Significant Accounting
Policies



Basis of Presentation



The Company’s financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).



Development Stage Company



The Company has not earned any revenue
from its planned principal operations. Accordingly, the Company's activities have been accounted for as those of a "Development
Stage Company" as defined by section 810-10-20 of the FASB Accounting Standards Codification. Among the disclosures required
by section 810-10-20 of the FASB Accounting Standards Codification are that the Company's financial statements be identified as
those of a development stage company, and that the statements of operations and stockholders' equity and cash flows disclose activity
since the date of the Company's inception. All losses accumulated since inception have been considered as part of the Company's
development stage activities.



Reclassification



Certain reclassifications have been made
in prior year’s financial statements to conform to the financial presentation used in the current year. These reclassifications
from General and Administrative Expenses to Research and Development expenses had no effect on total operating expenses, operating
loss or net loss for any period presented.



Use of Estimates and Assumptions



The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.



The Company’s significant estimates
include the fair value of financial instruments; the carrying value, recoverability and impairment of long-lived assets, including
the values assigned to and estimated useful lives of property and equipment and trade mark, and underlying assumptions to estimate
the fair value of derivative financial instruments; income tax rate, income tax provision and valuation allowance of deferred tax
assets. These significant accounting estimates bear the risk of change due to the fact that there are uncertainties attached to
those estimates and certain estimates are difficult to measure or value.



Management bases its estimates on historical
experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.



Management regularly reviews its estimates
utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions.
After such reviews, if deemed appropriate, those estimates are adjusted accordingly.



Actual results could differ from those
estimates.



Derivatives and Fair Value of Financial
Instruments



The Company applied paragraph 810-10-05-4
of the FASB Accounting Standards Codification to the preferred stock convertible to common stock associated with the Preferred
Series C stock issued June 28, 2012 (described in Note 8).  Based on the guidance in paragraph 810-10-05-4 of the FASB
Accounting Standards Codification the Company concluded these instruments were required to be accounted for as derivatives as of
June 28, 2012.  The Company records the fair value of the preferred stock that are classified as derivatives on its balance
sheet at fair value with changes in the values of these derivatives reflected in the consolidated statements of operations as “Gain
(loss) on derivative liabilities.”  These derivative instruments are not designated as hedging instruments under
paragraph 810-10-05-4 of the FASB Accounting Standards Codification and are disclosed on the balance sheet under Derivative Liabilities.



The Company follows paragraph 825-10-50-10
of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph
820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of
its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally
accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency
and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy
which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.  The fair
value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs.  The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37
are described below:



F-9







Level 1 –
Quoted prices in active markets for identical assets or liabilities.



Level 2 –
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.



Level 3 –
Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined
using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination
of fair value requires significant judgment or estimation. The Company’s Level 3 liabilities consist of the derivative liabilities
associated with the Preferred Series C stock issued June 28, 2012. At June 30, 2012, all $1,078,698 of the Company’s derivative
liabilities were categorized as Level 3 fair value liabilities.



If the inputs used to measure the financial
assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that
is significant to the fair value measurement of the instrument.



Level 3 Valuation Techniques



Financial assets are considered Level 3
when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least
one significant model assumption or input is unobservable. Level 3 financial liabilities consist of the Preferred Series C stock
issued June 28, 2012 for which there is no current market for these securities such that the determination of fair value requires
significant judgment or estimation. We have valued the automatic conditional conversion, re-pricing/down-round, change of control;
default and follow-on offering provisions using a lattice model, with the assistance of a valuation consultant, for which management
understands the methodologies. These models incorporate transaction details such as Company stock price, contractual terms, maturity,
risk free rates, as well as assumptions about future financings, volatility, and holder behavior as of issuance and June 30, 2012.
The primary assumptions include: projected annual volatility of 70%-203%; the follow-on securities purchase option; the conversion
feature as a percentage of Market; automatic/conditional conversions; market price trigger events.



The fair value of the derivatives was $1,090,017 as of June
28, 2012 upon issuance and was $1,078,698 at June 30, 2012.



The foregoing assumptions are reviewed quarterly and are subject
to change based primarily on management’s assessment of the probability of the events described occurring.  Accordingly,
changes to these assessments could materially affect the valuation.



Transactions involving related parties
cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings
may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions
were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.



It is not, however, practical to determine
the fair value of accounts payable – related parties, if any, due to their related party nature.



Financial Assets and Liabilities Measured at Fair Value on
a Recurring Basis



Financial assets and liabilities measured
at fair value on a recurring basis are summarized below and disclosed on the balance sheet under Derivative Liabilities:



|                                       |  | As of June 30, 2012 |          
|-------------------------------------- |  | ------------------- | ---------
|                                       |  | Carrying            |          
|                                       |  | Value               |          
|Liabilities                            |  |                     |          
|Derivative Liabilities associated with |  |                     |          
|Series C Preferred stock               |  |                     | 1,078,698
|Total Derivative Liabilities           |  |                     | 1,078,698



F-10







The table below provides a summary of the
changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value on a recurring basis
using significant unobservable inputs (Level 3) during the fiscal year ended June 30, 2012:



|                                            |  | Fair Value Measurements
Using Level 3 Inputs |          
|------------------------------------------- |  | -------------------------------------------- | ---------
|                                            |  | Derivative                                   |          
|                                            |  | Liabilities                                  |          
|Beginning Balance as of July 1, 2011        |  |                                              | 17,519   
|Total Gains or Losses (realized/unrealized) |  |                                              |          
|Included in Net Income                      |  |                                              | (172,245 
|Included in Other Comprehensive Income      |  |                                              |          
|Purchases, Issuances and Settlements        |  |                                              | 1,233,424
|Transfers in and/or out of Level 3          |  |                                              | -        
|Ending Balance at June 30, 2012             |  |                                              | 1,078,698



Carrying Value, Recoverability and
Impairment of Long-Lived Assets



The Company has adopted paragraph 360-10-35-17
of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property
and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.



The Company assesses the recoverability
of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or
group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if
any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using
the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined
to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book
values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.



The Company considers the following to
be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses
of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or
use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in
the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased
competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory
changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the
occurrence of such events.



The impairment charges, if any, is included
in operating expenses in the accompanying consolidated statements of operations.



The Company determined that there were
no impairments of long-lived assets as of June 30, 2012 or 2011.



Fiscal Year End



The Company elected June 30 as its fiscal
year ending date.



Cash and Cash Equivalents



The Company considers all highly liquid
instruments with original maturities of three months or less to be cash equivalents.



Property and Equipment



Property and equipment is stated at cost
and depreciated over the estimated useful lives of the assets (generally five (5) to seven (7) years), or lease term for leasehold
improvement, using the straight-line method. Expenditures for major additions and betterments are capitalized.  Maintenance
and repairs are charged to operations as incurred. Upon sale or retirement of property and equipment, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is reflected in statements of operations.



F-11







Impairment of Long-Lived Assets



The Company has adopted paragraph 360-10-35-17
of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property
and equipment, trademark and patents, are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.



The Company assesses the recoverability
of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or
group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if
any, is based on the excess of the carrying amount over the fair value of those assets.  Fair value is generally determined
using the asset’s expected future discounted cash flows or market value, if readily determinable.  If long-lived
assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally
estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.



Research and Development



Research and development expenses consist
primarily of costs associated with the preclinical and/ or clinical trials of drug candidates, compensation and other expenses
for research and development, personnel, supplies and development materials, costs for consultants and related contract research
and facility costs. Expenditures relating to research and development are expensed as incurred.



Stock-Based Compensation for Obtaining
Employee Services



The Company accounts for its stock based
compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement
principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant
to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine
the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which
it is probable that performance will occur. If shares of the Company are thinly traded the use of share prices established in the
Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally
be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread
between the bid and asked quotes and lack of consistent trading in the market.



The fair value of each option award is
estimated on the date of grant using a Black-Scholes option-pricing valuation model.  The ranges of assumptions for inputs
are as follows:



|· | Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-50-S99-1, it may be appropriate to use the simplified method, if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term..
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· | Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-12







|· | Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the option and similar instruments.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the option and similar instruments.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company’s policy is to recognize
compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite
service period for the entire award.



Equity Instruments Issued to Parties
other than Employees for Acquiring Goods or Services



The Company accounts for equity instruments
issued to parties other than employees for acquiring goods or services under guidance of section 505-50-30 of the FASB Accounting
Standards Codification (“FASB ASC Section 505-50-30”).



Pursuant to FASB ASC Section 505-50-30,
all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more
reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier
of the date on which the performance is complete or the date on which it is probable that performance will occur. If shares of
the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum
(“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations
as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading
in the market.



The fair value of share
options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model.
The ranges of assumptions for inputs are as follows:



|· | Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments.  If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· | Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· | Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the option and similar instruments.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|· | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the option and similar instruments.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-13







Pursuant to ASC paragraph
505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement
for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of
the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached.
A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether
the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity
under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1,
a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable
equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific
performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity
by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the
balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other
than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date
for transactions that are within the scope of this Subtopic.



Pursuant to ASC paragraphs 505-50-25-8
and 505-50-25-9, anentity may grant fully vested, non-forfeitable equity instruments that are exercisable
by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee
achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in
the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying
with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option
that the counterparty has the right to exercise expires unexercised.



Pursuant to ASC paragraph 505-50-30-S99-1,
if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity
instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are
not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should
be recorded.



Related Parties



The Company follows subtopic 850-10 of
the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.



Pursuant to Section 850-10-20 the related
parties include a. affiliates of the Company; b. entities for which investments in their equity securities would be required,
absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted
for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing
trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the
Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management
or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its
own separate interests; and g. other parties that can significantly influence the management or operating policies of the
transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other
to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.



The financial statements shall include
disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar
items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated
or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the
relationship(s) involved b.  description of the transactions, including transactions to which no amounts or nominal amounts
were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to
an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for
each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms
from that used in the preceding period; and d. amounts due from or to related parties as of
the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.



Commitment and Contingencies



The Company follows subtopic 450-20 of
the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date
the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more
future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves
an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted
claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims
as well as the perceived merits of the amount of relief sought or expected to be sought therein.



F-14







If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss
contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent
liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.



Loss contingencies considered remote are
generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe,
based upon information available at this time, that these matters will have a material adverse effect on the Company’s financial
position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely
affect the Company’s business, financial position, and results of operations or cash flows.



Income Tax Provision



The Company accounts for income taxes under
Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under
this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred
tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will
not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Income and Comprehensive Income
in the period that includes the enactment date.



The Company adopted section 740-10-25 of
the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of
whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under
Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The
tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has
a greater than fifty (50) percent likelihood of being realized upon ultimate settlement.  Section 740-10-25 also provides
guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires
increased disclosures.  The Company had no material adjustments to its liabilities for unrecognized income tax benefits
according to the provisions of Section 740-10-25.



Uncertain Tax Positions



The Company did not take any uncertain
tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25
for the fiscal year ended June 30, 2012 or 2011.



The estimated future tax effects of temporary
differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit
carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance
sheets and provides valuation allowances as management deems necessary.



Management makes judgments as to the interpretation
of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the
Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion,
adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates,
additional allowances or reversals of reserves may be necessary.



Concentrations of Risk



Financial instruments that potentially
subject us to a significant concentration of credit risk consist primarily of cash and cash equivalents. The Company maintains
deposits in federally insured institutions in excess of federally insured limits. The Company does not believe it is exposed to
significant credit risk due to the financial position of the depository institutions in which those deposits are held.



Net Income (Loss) per Common Share



Net income (loss) per common share is computed
pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed
by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net
income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock
and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common
shares issuable through stock options and warrants.



F-15







The following table shows the number of
potentially outstanding dilutive common shares excluded from the diluted net income (loss) per common share calculation as they
were anti-dilutive:









|                                                                                                                                                                                          |  | Potentially Outstanding Dilutive Common Shares |           
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ----------
|                                                                                                                                                                                          |  | For the Interim Period Ended June 30, 2012     |           
|                                                                                                                                                                                          |  |                                                |           
|Stock options                                                                                                                                                                             |  |                                                |           
|                                                                                                                                                                                          |  |                                                |           
|Stock options issued on September 23, 2005 to the founders of the Company upon formation with an exercise price of $0.10 per share expiring ten(10) years from the date of issuance       |  |                                                | 1,875,000 
|                                                                                                                                                                                          |  |                                                |           
|Sub-total: stock options                                                                                                                                                                  |  |                                                | 1,875,000 
|                                                                                                                                                                                          |  |                                                |           
|Warrants                                                                                                                                                                                  |  |                                                |           
|                                                                                                                                                                                          |  |                                                |           
|Warrants issued from June 15,2006 to October 1, 2007   to investors in connection with the Company’s equity financing with an exercise price of $1.00 per share expiring February 28,2014 |  |                                                | 1,796,000 
|                                                                                                                                                                                          |  |                                                |           
|Warrants issued on August 22, 2008 to investors inconnection with the Company’s equity financing with an exercise price of $1.00 per share expiring February 28,2014                      |  |                                                | 1,632,700 
|                                                                                                                                                                                          |  |                                                |           
|Warrants issued from June 15, 2008 through May 15,2010 to SAB for services with an exercise price from $0..70 to $2.68  per share expiring February 28,2014                               |  |                                                | 740,000   
|                                                                                                                                                                                          |  |                                                |           
|Warrants issued on June 30, 2009 to investors  with an exercise price of $1.00 per share expiring February 28, 2014                                                                       |  |                                                | 1,990,700 
|                                                                                                                                                                                          |  |                                                |           
|Warrants issued on September 30, 2009 to investors  with an exercise price of $1.00 per share expiring February 28, 2014                                                                  |  |                                                | 5,032,550 
|                                                                                                                                                                                          |  |                                                |           
|Warrants issued from August 16, 2010 to May 15, 2011 to SAB for services with an exercise price from $1.47 to $1.81 per share expiring fiscal year ending June 30, 2015                   |  |                                                | 230,000   
|                                                                                                                                                                                          |  |                                                |           
|Warrants issued from August 16, 2011 to May 15, 2012 to SAB for services with an exercise price from $0.80 to $1.41 per share expiring fiscal year ending June 30, 2016                   |  |                                                | 240,000   
|                                                                                                                                                                                          |  |                                                |           
|                                                                                                                                                                                          |  |                                                |           
|Sub-total: warrants                                                                                                                                                                       |  |                                                | 11,961,950
|Total potentially outstanding dilutive common shares                                                                                                                                      |  |                                                | 13,836,950







In addition the Company has issued Convertible preferred shares,
to an investor. A portion of such preferred shares are required to be converted to common shares each 14 days , according to their
terms. At June 30, 2012 the estimated number of potentially dilutive shares of the Company’s common stock into which these
preferred shares can be converted is 4,784,792 based upon the Selling price of the Company’s common stock on June 30, 2012.







F-16







Cash Flows Reporting



The Company adopted paragraph 230-10-45-24
of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether
they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or
reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification
to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities
by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating
cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The
Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of
the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the
reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing
and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB
Accounting Standards Codification.



Subsequent Events



The Company follows the guidance in Section
855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent
events through the date when the financial statements are issued.  Pursuant to ASU 2010-09 of the FASB Accounting Standards
Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users,
such as through filing them on EDGAR.



Recently Issued Accounting Pronouncements



FASB
Accounting Standards Update No. 2011-08



In September 2011, the FASB issued the
FASB Accounting Standards Update No. 2011-08 “Intangibles—Goodwill and Other:Testing Goodwill for Impairment” (“ASU 2011-08”).This Update is to simplify how public and nonpublic
entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether
it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining
whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this Update,
an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than
not that its fair value is less than its carrying amount.



The guidance is effective for interim and
annual periods beginning on or after December 15, 2011.Early adoption
is permitted.



FASB
Accounting Standards Update No. 2011-11



In December 2011, the FASB issued the FASB
Accounting Standards Update No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU
2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable
users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this
disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP
and those entities that prepare their financial statements on the basis of IFRS.



The amended guidance is effective for annual
reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.



FASB Accounting Standards
Update No. 2012-02



In July 2012, the FASB issued the FASB
Accounting Standards Update No. 2012-02 “Intangibles—Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible
Assets for Impairment” (“ASU 2012-02”).



This Update is intended to reduce the cost
and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. This guidance builds upon the
guidance in ASU 2011-08, entitled Testing Goodwill for Impairment. ASU 2011-08 was issued on September 15, 2011, and
feedback from stakeholders during the exposure period related to the goodwill impairment testing guidance was that the guidance
also would be helpful in impairment testing for intangible assets other than goodwill.



F-17







The revised standard allows an entity the
option to first assess qualitatively whether it is more likely than not (that is, a likelihood of more than 50 percent) that an
indefinite-lived intangible asset is impaired, thus necessitating that it perform the quantitative impairment test. An entity
is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test
unless the entity determines that it is more likely than not that the asset is impaired.



This Update is effective for annual and
interim impairment tests performed in fiscal years beginning after September 15, 2012.  Earlier implementation is permitted.



Other
Recently Issued, but not yet Effective Accounting Pronouncements



Management does not believe that any other
recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying
consolidated financial statements.



Note 3 - Financial Condition



As reflected in the accompanying financial
statements, the Company had a deficit accumulated during the development stage at June 30, 2012 and had a net loss and net cash
used in operating activities for the fiscal year then ended. In addition, the Company has not generated any revenues and no revenues
are anticipated in the foreseeable future. Since May 2005, the Company has been engaged exclusively in research and development
activities focused on developing targeted antiviral drugs. The Company has not yet commenced any product commercialization. Such
losses are expected to continue for the foreseeable future and until such time, if ever, as the Company is able to attain sales
levels sufficient to support its operations. There can be no assurance that the Company will achieve or maintain profitability
in the future. As of June 30, 2012 the Company had a cash and cash equivalent of $14,274,985.



While the Company continues to incur significant
operating losses with significant capital requirements, the Company has been able to finance its business through sale of its securities.
(See Note 8) On November 2, 2011, NanoViricides, Inc. (the “Registrant”) and Seaside 88, LP (“Seaside”)
executed a Securities Purchase Agreement regarding the purchase and sale of up to 500,000 shares of the Registrant’s Series
B Convertible Preferred Stock at $10.00 per share.. On June 28, 2012, the Company entered into an additional Securities Purchase
Agreement (the “Agreement”) with Seaside, relating to the offering and sale (the “Offering”) of up to 5,000
shares of the Company’s Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”)
at the purchase price of $1,000.00 per share (the “Purchase Price”). On June 28, 2012, Seaside purchased an initial
2,500 shares of the Series C Preferred Stock for an aggregate purchase price of $2,500,000 (the “Initial Closing”).
The net proceeds of such Agreement provides the Company with sufficient capital to continue its business at least until June 30,
2014, at the current rate of expenditure. The Company therefore would not be considered to have risks relative to its ability to
continue as a going concern within the applicable guidelines.



Since May 2005, the Company has been engaged
exclusively in research and development activities focused on developing targeted nano viral drugs. The Company has not yet commenced
any product commercialization. The Company has incurred significant losses from operations since its inception, resulting in a
deficit accumulated during the development stage of $29,424,116 at June 30, 2012 and expects recurring losses from operations to
continue for the foreseeable future and until such time, if ever, as the Company is able to attain sales levels sufficient to support
its operations. There can be no assurance that the Company will achieve or maintain profitability in the future. Despite the Company’s
financings in 2012 and 2011 and a cash and cash equivalent balance of $14,274,985 at June 30, 2012, substantial additional financing
will be required in future periods. The Company believes it will require an additional $3,000,000 during the next twenty four months,
and will also require up to an additional $2,000,000 to finance planned capital costs, and additional staffing requirements during
the next twenty four months. The Company believes it can adjust its priorities of drug development and its Plan of Operations as
necessary, if it is unable to raise such funds.



The Company continues to successfully raise
additional capital:



On November 2, 2011, NanoViricides, Inc.
and Seaside 88, LP (“Seaside”) entered into a Securities Purchase Agreement regarding the purchase and sale of 500,000
shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”) at $10.00 per share,
or $5,000,000 in aggregate. On November 2, 2011, Seaside purchased an initial 250,000 shares of the Company’s Series B Preferred
Stock, par value $0.001 per share (the “Series B Preferred Stock”) for an aggregate purchase price of $2,500,000 (the
“Initial Closing”). On February 7, 2012, Seaside purchased the remaining 250,000 shares of the Series B Preferred Stock
for the purchase price of $2,500,000 (the “Subsequent Closing)..



F-18







On June 28, 2012, the Company entered into
an additional Securities Purchase Agreement (the “Agreement”) with Seaside, relating to the offering and sale (the
“Offering”) of up to 5,000 shares of the Company’s Series C Convertible Preferred Stock, par value $0.001 per
share (the “Series C Preferred Stock”) at the purchase price of $1,000.00 per share (the “Purchase Price”).
On June 28, 2012, Seaside purchased an initial 2,500 shares of the Series C Preferred Stock for an aggregate purchase price of
$2,500,000 (the “Initial Closing”). Following the Initial Closing, Seaside will purchase the remaining 2,500 shares
of the Series C Preferred Stock for the purchase price of $2,500,000 (the “Subsequent Closing”).



As a result of the successful sale of the
Company’s Series B and Series C Convertible Preferred Stock to Seaside, LP the management believes that the Company has sufficient
cash and cash equivalents to meet its budgeted expenditures through December 31, 2014.



Note 4 - Related Party Transactions



TheraCour Pharma, Inc.



Pursuant to an Exclusive License Agreement
we entered into with TheraCour Pharma, Inc., (TheraCour), the Company was granted exclusive licenses in perpetuity for technologies
developed by TheraCour for the virus types: HIV, HCV, Herpes, Asian (bird) flu, Influenza and rabies. . In consideration for obtaining
this exclusive license, we agreed: (1) that TheraCour can charge its costs (direct and indirect) plus no more than 30% of direct
costs as a Development Fee and such development fees shall be due and payable in periodic installments as billed. (2) we will pay
$25,000 per month for usage of lab supplies and chemicals from existing stock held by TheraCour, (3) we will pay $2,000 or actual
costs, whichever is higher for other general and administrative expenses incurred by TheraCour on our behalf (4) make royalty payments
(calculated as a percentage of net sales of the licensed drugs) of 15% to TheraCour Pharma, Inc. (5) agreed that TheraCour Pharma,
Inc. retains the exclusive right to develop and manufacture the licensed drugs. TheraCour Pharma, Inc. agreed that it will manufacture
the licensed drugs exclusively for NanoViricides, and unless such license is terminated, will not manufacture such product for
its own sake or for others.



On February 15, 2010 the Company
approved an Additional License Agreement with TheraCour Pharma, Inc. (“TheraCour”). Pursuant to the exclusive
Additional License Agreement, the Company was granted exclusive licenses, in perpetuity, for technologies, developed by
TheraCour, for the development of drug candidates for the treatment of Dengue viruses, Ebola/Marburg viruses, Japanese
Encephalitis, viruses causing viral Conjunctivitis (a disease of the eye) and Ocular Herpes. As consideration for obtaining
these exclusive licenses, we agreed to pay a one time licensing fee equal to seven million shares of the Company’s
Series A Convertible Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred Stock is
convertible, only upon sale or merger of the company, or the sale of or license of substantially all of the Company’s
intellectual property, into shares of the Company’s common stock at the rate of  three and one-half shares of common
stock for each share of Series A Preferred Stock. The Series A Preferred Stock has a preferred voting preference at the rate
of  nine votes per share. The Preferred Series A do not contain any rights to dividends; have no liquidation preference and
are not to be amended without the holders approval. The issuance of the 7,000,000 shares was valued at their par value or
$7,000.



TheraCour Pharma, Inc. may terminate these
licenses upon a material breach by us as specified in the agreement.



Development costs charged by and paid to
TheraCour Pharma, Inc. were $2,965,030, $1,250,901, and 1,086,927 for the fiscal years ended June 30, 2012, 2011 and 2010, respectively
and $6,617,004 since inception. As of June 30, 2012, pursuant to its license agreement, the Company has paid a security advance
of $281,775 to and held by TheraCour Pharma, Inc. which is reflected in Prepaid Expenses. No royalties are due TheraCour from the
Company’s inception through June 30, 2012.



TheraCour Pharma, Inc., is affiliated with
the Company through the common control of it and our Company by Anil Diwan, President, who is a director of each corporation, and
owns approximately 70% of the issued and outstanding common stock of TheraCour Pharma, Inc., which itself owns 33,360,000 shares
of the Company’s issued and outstanding common stock, as of June 30, 2012, representing approximately 21.44% of the issued
and outstanding common stock of the Company.



Note 5 - Concentrations



KARD Scientific, Inc.



In June 2005, the Company engaged KARD
Scientific to conduct pre clinical animal studies and provide the Company with a full history of the study and final report with
the data collected from Good Laboratory Practices (CGLP) style studies. Dr. Krishna Menon, the Company’s Consulting Chief
Regulatory Officer, a non executive position, is also an officer and principal owner of KARD Scientific. The Lab fees charged by
KARD Scientific for services were $507,500, $719,462, and 78,940 for the fiscal years ended June 30, 2012, 2011 and 2010 respectively.



F-19







KARD Scientific Inc. of Beverly, Massachusetts,
is currently our primary vendor for animal model study design and performance. KARD operates its own facilities in Beverly, Massachusetts.



NanoViricides has a fee for service arrangement
with KARD. We do not have an exclusive arrangement with KARD; we do not have a contract with KARD; all work performed by KARD must
have prior approval by the executive officers of NanoViricides; and we retain all intellectual property resulting from the services
by KARD.



Note 6 - Prepaid Expenses



Prepaid Expenses consisted of the following:



|                       |  | June 30, 2012 |         |  | June 30, 2011 |  
|---------------------- |  | ------------- | ------- |  | ------------- | -
|TheraCour Pharma, Inc. |  | $             | 281,775 |  |               | $
|Kard Scientific, Inc.  |  |               | -       |  |               |  
|Prepaid Others         |  |               | 32,399  |  |               |  
|                       |  |               |         |  |               |  
|                       |  | $             | 314,174 |  |               | $



Note 7 - Property and Equipment



Property and equipment consisted of the
following:





|                              |  | June 30, 2012 |           |  | June 30, 2011 |  
|----------------------------- |  | ------------- | --------- |  | ------------- | -
|                              |  |               |           |  |               |  
|Leasehold Improvements        |  | $             | 332,476   |  |               | $
|                              |  |               |           |  |               |  
|Office Equipment              |  |               | 30,048    |  |               |  
|                              |  |               |           |  |               |  
|Furniture and Fixtures        |  |               | 1,400     |  |               |  
|                              |  |               |           |  |               |  
|Lab Equipment                 |  |               | 1,076,793 |  |               |  
|                              |  |               |           |  |               |  
|Total Property and Equipment  |  |               | 1,440,717 |  |               |  
|                              |  |               |           |  |               |  
|Less Accumulated Depreciation |  |               | 825,875   |  |               |  
|Property and Equipment, Net   |  | $             | 614,842   |  |               | $



Depreciation expense amounted to $210,877,
$201,886 and $81,514 for the fiscal year ended June 30, 2012. 2011 and 2010, respectively.



Note 8 – Trademark and Patents



Trademark and patents consisted of the
following:



|                              |  | June 30, 2012 |         |   | June 30, 2011 |  
|----------------------------- |  | ------------- | ------- | - | ------------- | -
|                              |  |               |         |   |               |  
|Trademarks and Patents        |  | $             | 458,954 |   |               | $
|Less Accumulated Amortization |  |               | (33,147 | ) |               |  
|Trademarks and Patents, Net   |  | $             | 425,807 |   |               | $



Amortization expense amounted to $8,775,
$8,775 and $8,775, for the fiscal year ended June 30, 2012, 2011 and 2010, respectively.





F-20









Note 9 - Equity Transactions



Fiscal Year Ending June 30, 2010
Transactions:

In August 2009, the Scientific Advisory Board (SAB) was granted warrants to purchase 50,000 shares of the Company’s $0.001
par value common stock at $1.10 per share.  These warrants, if not exercised, will expire in August 2013.  The
fair value of these warrants in the amount of $41,400 was recorded as a consulting expense.



On September 30, 2009, the Company
accepted subscriptions from certain accredited investors and warrant holders in the total aggregate amount of $3,217,400.  In
the Company’s offering of Units comprised of shares of the Company’s $0.001 par value common stock and warrants to
purchase the Company’s $0.001 par value common stock, the Company accepted subscriptions for $1,337,500 for Units consisting
of 2,675,000 shares and Warrants to purchase an additional 1,337,500 shares.  In the offering to its warrant holders,
the Company raised an aggregate of $1,879,900 for 3,759,800 shares and warrants to purchase 3,759,800 shares.  The Company
paid $5,250 and issued 5,250 warrants as a Finder’s Fee.  The fair value of the warrants in the amount of $3,570
was recorded as an expense.



On November 10, 2009, 10,000 warrants
were converted into the Company’s $0.001 par value common stock.  The Company received $1,430 upon this conversion.



In November, 2009, the SAB was granted
warrants to purchase 50,000 shares of the Company’s $0.001 par value common stock at $1.06 per share.  These warrants,
if not exercised, will expire in November 2013.  The fair value of these warrants in the amount of $39,600 was recorded
as a consulting expense.

In November, 2009, the Company’s Board of Directors authorized the issuance of 32,500 shares of the Company’s $0.001
par value common stock with a restrictive legend, in payment of a current account payable for laboratory equipment in the amount
of $25,200.



On February 15, 2010 the Company
approved an Additional License Agreement with TheraCour Pharma, Inc. (“TheraCour”).  Pursuant to the
exclusive Additional License Agreement, the Company was granted exclusive licenses, in perpetuity, for technologies,
developed by TheraCour, for the development of drug candidates for the treatment of Dengue viruses, Ebola/Marburg viruses,
Japanese Encephalitis, viruses causing viral Conjunctivitis (a disease of the eye) and Ocular Herpes.  As
consideration for obtaining these exclusive licenses, we agreed to pay a one time licensing fee equal to seven million shares
of the Company’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”).  The
Series A Preferred Stock is convertible, only upon sale or merger of the company, or the sale of or license of substantially
all of the Company’s intellectual property, into shares of the Company’s common stock at the rate of  three and
one-half shares of common stock for each share of Series A Preferred Stock.  The Series A Preferred Stock has a
preferred voting preference at the rate of  nine votes per share. The Preferred Series A do not contain any rights to
dividends; have no liquidation preference and are not to be amended without the holders approval. The 7,000,000 shares was
valued at their par value or $7,000.



In February, 2010, the SAB was granted
warrants to purchase 50,000 shares of the Company’s $0.001 par value common stock at $1.272 per share. These warrants, if
not exercised, will expire in February 2014.  The fair value of these warrants in the amount of $40,200 was recorded
as consulting expense.



On March 3, 2010, the Company issued
250,000 shares of $0.001 par value common stock and 593,750 shares of Series A to certain of its employees pursuant to the terms
of certain employment agreements.  The Company recorded a salary expense of $1,532,830.



In March, 2010, the Company filed a
Form S-3 Shelf Registration with the Securities and Exchange Commission (SEC) for the sale from time to time of up to $40 million
of the Company’s securities.  The registration statement became effective on April 29, 2010.



In May, 2010, the SAB was granted warrants
to purchase 50,000 shares of the Company’s $0.001 par value common stock at $1.38 per share.  These warrants, if
not exercised, will expire in May, 2014.  The fair value of these warrants in the amount of $82,800 was recorded as consulting
expense.



In April, 2010, the Company’s
Board of Directors authorized the issuance of 39,625 shares of the Company’s $0.001 par value common stock with a restrictive
legend in payment of a current account payable for laboratory equipment in the amount of $31,700.





F-21







On May 11, 2010, the Company entered
into a Securities Purchase Agreement (the “Agreement”) with Seaside 88, LP, a Florida limited partnership (“Seaside”),
relating to the offering and sale of 500,000 shares of the Company’s $0.001 par value Series B Convertible Preferred Stock,
(“Series B”) at the purchase price of $10.00 per share (the “Purchase Price”).  Under the terms
of the agreement, 60,000 shares of Series B shall automatically convert into shares of the Company’s $0.001 par value common
stock at the closing and every fourteenth day thereafter at a conversion factor equal to the Purchase Price divided by the lower
of (i) of the daily volume weighted average of actual trading prices of the Company’s $0.001 par value common stock on the
trading market (the “VWAP”) for the ten consecutive trading days immediately prior to a conversion date multiplied
by 0.85 or (ii) the VWAP for the trading day immediately prior to a conversion date multiplied by 0.88.  The Agreement
also provided that a 10% per annum dividend would accrue on all outstanding shares of Series B (the “Dividend”), to
be paid on each conversion date either in cash or the Company’s $0.001 par value common stock.  If the Company
chooses to pay the said dividends in stock, each share of the Company’s $0.001 par value common stock would be valued at
85% of the 10-day VWAP.



On May 12, 2010, the Company issued
500,000 shares of its Series B in accord with the aforementioned agreement.  The Company received $5,000,000 in consideration
for the Series B.  The Company recorded a placement agent fee of $400,000 and legal fees of $50,000 in association with
this transaction.  As set forth in Note 3 the Company evaluated the application of paragraph 810-10-05-4 of the FASB
Accounting Standards Codification to the preferred stock convertible to common stock associated with the Preferred Series B stock
issued May 12, 2010.  Based on paragraph 810-10-05-4 of the FASB Accounting Standards Codification, the Company concluded
these instruments were required to be accounted for as derivatives as of May 12, 2010.  The Company recorded an initial
derivative liability of $1,787,379, which is amortized as the Series B is converted pursuant to the terms of the Securities Purchase
Agreement.



On May 12, 2010, Seaside 88, LP (“Seaside”)
converted 60,000 shares of Series B into 319,331 shares of the Company’s $0.001 par value common stock at $1.88 per share.



On May 26, 2010, Seaside converted
60,000 shares of Series B into 398,189 shares of the Company’s $0.001 par value common stock at $1.51 per share.  The
Company elected to pay the Dividend in common stock and issued 10,300 shares of $0.001 par value common stock to Seaside at the
fair value of $1.64 per share.  The Company recorded a dividend charge to equity of $16,877.



On June 9, 2010, 195,000 warrants were
converted into the Company’s $0.001 par value common stock.  The Company received $195,000 upon this conversion.



On June 9, 2010, Seaside converted
60,000 shares of Series B into 426,721 shares of the Company’s $0.001 par value common stock at $1.41 per share.  The
Company elected to pay the Dividend in common stock and issued 10,366 shares of $0.001 par value common stock to Seaside at the
fair value of $1.41 per share.  The Company recorded a dividend charge to equity of $14,575.



On June 23, 2010, Seaside converted
60,000 shares of Series B into 377,905 shares of the Company’s $0.001 par value common stock at $1.59 per share.  The
Company elected to pay the Dividend in common stock and issued 7,731 shares of $0.001 par value common stock to Seaside at the
fair value of $1.59 per share.  The Company recorded a dividend charge to equity of $12,274.



On June 30, 2010, the derivative liability
associated with the aforementioned Securities Purchase Agreement was marked-to-market.  The Company estimated that at
June 30, 2010, the fair value of the derivatives was $1,787,379.



On May 11, 2010, the Company entered into a Securities Purchase
Agreement (the “Agreement”) with Seaside 88, LP, a Florida limited partnership (“Seaside”), relating to
the offering and sale of 500,000 shares of the Company’s $0.001 par value Series B Convertible Preferred Stock, (“Series
B”) at the purchase price of $10.00 per share (the “Purchase Price”).  Under the terms of the agreement,
60,000 shares of Series B shall automatically convert into shares of the Company’s $0.001 par value common stock at the closing
and every fourteenth day thereafter at a conversion factor equal to the Purchase Price divided by the lower of (i) of the daily
volume weighted average of actual trading prices of the Company’s $0.001 par value common stock on the trading market (the
“VWAP”) for the ten consecutive trading days immediately prior to a conversion date multiplied by 0.85 or (ii) the
VWAP for the trading day immediately prior to a conversion date multiplied by 0.88.  The Agreement also provided that
a 10% per annum dividend would accrue on all outstanding shares of Series B (the “Dividend”), to be paid on each conversion
date either in cash or the Company’s $0.001 par value common stock.  If the Company chooses to pay the said dividends
in stock, each share of the Company’s $0.001 par value common stock would be valued at 85% of the 10-day VWAP.



On May 12, 2010, the Company issued 500,000 shares of its Series
B in accord with the aforementioned agreement.  The Company received $5,000,000 in consideration for the Series B.  The
Company recorded a placement agent fee of $400,000 and legal fees of $50,000 in association with this transaction.  As
set forth in Note 3 the Company evaluated the application of paragraph 810-10-05-4 of the FASB Accounting Standards Codification
to the preferred stock convertible to common stock associated with the Preferred Series B stock issued May 12, 2010.  Based
on paragraph 810-10-05-4 of the FASB Accounting Standards Codification, the Company concluded these instruments were required to
be accounted for as derivatives as of May 12, 2010.  The Company recorded an initial derivative liability of $1,787,379,
which is amortized as the Series B is converted pursuant to the terms of the Securities Purchase Agreement.





F-22









Fiscal Year Ending June 30, 2011
Transactions:



On September 16, 2010, Seaside and the Company executed a Letter
Agreement and Amendment (the “Letter Agreement”) regarding the purchase and sale of an additional 500,000 shares (the
“Additional Shares”) of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”)
at the purchase price of $10.00 per share as originally contemplated by that certain Securities Purchase Agreement, dated May 11,
2010, between the parties (the “Agreement”).



Pursuant to the Letter Agreement, the parties agreed to amend
certain provisions of the Agreement so that the Additional Shares could be purchased in two (2) closings, at each of which the
Company will issue and sell to Seaside 250,000 shares of Series B Preferred Stock.  The parties also agreed that the
second closing of the Additional Shares would occur ninety (90) days subsequent to the first closing of the Additional Shares (the
“First Follow-on Closing Date”).  The Company also agreed to decrease the number of shares of Series B Preferred
Stock that automatically convert from 60,000 shares to 40,000 shares, commencing on the First Follow-on Closing Date and  the
date of the subsequent closing, and every 14th day thereafter, subject to certain limitations and qualifications, into shares of
the Company’s common stock, par value $0.001 per share (the “Common Stock”). The Certificate of Designation for
the Series B Preferred Stock was amended to reflect such change in the number of shares convertible into Common Stock at each conversion
date.  Each share of Series B Preferred Stock converts into shares of Common Stock at a conversion factor equal to the
Purchase Price divided by the lower of (i) of the daily volume weighted average of actual trading prices of the Common Stock on
the trading market (the “VWAP”) for the ten consecutive trading days immediately prior to a conversion date multiplied
by 0.85 or (ii) the VWAP for the trading day immediately prior to a conversion date multiplied by 0.88.



In the event that the 20-Day VWAP, as defined in the Agreement,
does not equal or exceed $0.20 (the “Floor”), as calculated with respect to any subsequent conversion date, then such
conversion will not occur and the shares not converted on that date will be added to the shares to be converted on the following
conversion date.



The First Follow-on Closing occurred on September 21, 2010.  The
conversion price per share for the First Follow-on Closing was $0.93007, and the Company raised gross proceeds of $2,500,000 at
such First Follow-on Closing, before estimated offering expenses of approximately $270,000 which includes placement agent and attorneys’
fees.



The Second Follow-on Closing occurred on December 21, 2010.
The Company raised gross proceeds of $2,500,000 at such Second Follow-on Closing, before estimated offering expenses of approximately
$270,000 which includes placement agent and attorney’s fees. The first conversion of the Second Follow-on shares occurred
on January 3, 2011, at a conversion price of $1.16348 per share.



The offering was made pursuant to the Company’s shelf
registration statement on Form S-3 (File No. 333-165221), which was declared effective by the Securities and Exchange Commission
on April 29, 2010.  The Company, pursuant to Rule 424(b) under the Securities Act of 1933, has filed with the Securities
and Exchange Commission a prospectus supplement relating to the offering.



In connection with the offering, pursuant to a placement agency
agreement entered into by and between Midtown Partners & Co., LLC (“Midtown”) and the Company on March 3, 2010
(the “Placement Agent Agreement”), the Company paid Midtown a cash fee representing 8% of the gross purchase price
paid by Seaside for the Series B Preferred Stock.



On April 18, 2011, the Company entered into an additional Securities
Purchase Agreement (the “Agreement”) with Seaside 88, LP (“Seaside”) relating to the offering and sale
(the “Offering”) of up to 500,000 shares of the Company’s Series B Convertible Preferred Stock, par value $0.001
per share (the “Series B Preferred Stock”) at the purchase price of $10.00 per share (the “Purchase Price”).  On
April 19, 2011, Seaside purchased an initial 250,000 shares of the Series B Preferred Stock for an aggregate purchase price of
$2,500,000 (the “Initial Closing”).  The First Follow-on closing occurred on July 26, 2011 at which Seaside
purchased the remaining 250,000 shares of the Series B Preferred Stock for the purchase price of $2,500,000 (the “Subsequent
Closing”).  40,000 shares of the Series B Preferred Stock automatically converted into shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”) at a conversion price of $0.782 per share



The Agreement contains representations and warranties and covenants
for each party, which must be true and have been performed at each closing.  Additionally, the Company has agreed to
indemnify and hold harmless Seaside against certain liabilities in connection with the issuance and sale of the Series B Preferred
Stock under the Agreement.





F-23







The offering was made pursuant to the Company’s shelf
registration statement on Form S-3 (File No. 333-165221), which was declared effective by the Securities and Exchange Commission
on April 29, 2010.  The Company, pursuant to Rule 424(b) under the Securities Act of 1933, has filed with the Securities
and Exchange Commission a prospectus supplement relating to the offering.



In connection with the offering, pursuant to a placement agency
agreement entered into by and between Midtown Partners & Co., LLC (“Midtown”) and the Company on March 3, 2010
(the “Placement Agent Agreement”), the Company paid Midtown a cash fee representing 8% of the gross purchase price
paid by Seaside for the Series B Preferred Stock.



In connection with the Offering, pursuant to a Placement Agency
Agreement entered into by and between Midtown and the Company, as amended by an Underwriter Agent Agreement Amendment No. 1, dated
March 28, 2011 (as amended, the “Placement Agency Agreement”), the Company will pay Midtown a cash fee representing
6% of the gross purchase price paid by Seaside for the Series B Preferred Stock.



During the six months ended June 30, 2011, Seaside
converted the following amounts of Series B Preferred Stock into the Company’s Common Stock:



|Date of Conversion |  | Number of Shares of Series B Converted |        |  | Conversion Price |  |         | Number of Shares of Common Stock Issued Pursuant to Conversion |  |  | Dividend Conversion Price |  |  | Dividend Shares Issued |         |  | Total Number of Shares of Common Stock Issued to Seaside | 
|------------------ |  | -------------------------------------- | ------ |  | ---------------- |  | ------- | -------------------------------------------------------------- |  |  | ------------------------- |  |  | ---------------------- | ------- |  | -------------------------------------------------------- | 
|01/03/2011         |  |                                        | 40,000 |  |                  |  | 1.16348 |                                                                |  |  | 343,796                   |  |  |                        | 1.16348 |  |                                                          | 
|01/14/2011         |  |                                        | 40,000 |  |                  |  | 1.25800 |                                                                |  |  | 317,965                   |  |  |                        | 1.258   |  |                                                          | 
|01/31/2011         |  |                                        | 40,000 |  |                  |  | 1.12260 |                                                                |  |  | 356,422                   |  |  |                        | 1.237   |  |                                                          | 
|02/14/2011         |  |                                        | 40,000 |  |                  |  | 1.08103 |                                                                |  |  | 370,017                   |  |  |                        | 1.08103 |  |                                                          | 
|02/28/2011         |  |                                        | 40,000 |  |                  |  | 0.98617 |                                                                |  |  | 405,610                   |  |  |                        | 0.98617 |  |                                                          | 
|03/14/2011         |  |                                        | 40,000 |  |                  |  | 1.08911 |                                                                |  |  | 367,274                   |  |  |                        | 1.08911 |  |                                                          | 
|03/28/2011         |  |                                        | 10,000 |  |                  |  | 1.11129 |                                                                |  |  | 89,986                    |  |  |                        | 1.11129 |  |                                                          | 
|04/18/2011         |  |                                        | 40,000 |  |                  |  | 1.16348 |                                                                |  |  | 312,163                   |  |  |                        | 1.28138 |  |                                                          | 
|05/02/2011         |  |                                        | 40,000 |  |                  |  | 1.25800 |                                                                |  |  | 339,726                   |  |  |                        | 1.17742 |  |                                                          | 
|05/16/2011         |  |                                        | 40,000 |  |                  |  | 1.12260 |                                                                |  |  | 336,502                   |  |  |                        | 1.1887  |  |                                                          | 
|05/30/2011         |  |                                        | 40,000 |  |                  |  | 1.08103 |                                                                |  |  | 326,480                   |  |  |                        | 1.22519 |  |                                                          | 
|06/13/2011         |  |                                        | 40,000 |  |                  |  | 0.98617 |                                                                |  |  | 339,971                   |  |  |                        | 1.17657 |  |                                                          | 
|06/27/2011         |  |                                        | 40,000 |  |                  |  | 1.08911 |                                                                |  |  | 391,850                   |  |  |                        | 1.0208  |  |                                                          | 



In December 10, 2010, the Company filed a Form S-8 Registration
Statement related to the issuance of 50,000 shares of the Company’s .001 par value common stock, pursuant to a consulting
agreement.  The Company issued such shares on or about December 10, 2010, and recorded a consulting expense of $64,000.



Fiscal Year Ending June 30, 2012
Transactions:



On November 2, 2011, the Company entered
into a Securities Purchase Agreement (the “Agreement”) with Seaside, relating to the offering and sale (the “Offering”)
of up to 500,000 shares of the Company’s Series B Convertible Preferred Stock, par value $0.001 per share (the “Series
B Preferred Stock”) at the purchase price of $10.00 per share (the “Purchase Price”). On November 2, 2011, Seaside
purchased an initial 250,000 shares of the Series B Preferred Stock for an aggregate purchase price of $2,500,000 (the “Initial
Closing”). Seaside purchased the remaining 250,000 shares of the Series B Preferred Stock for the purchase price of $2,500,000
(the “Subsequent Closing”). 40,000 shares of the Series B Preferred Stock automatically converted into shares of the
Company’s common stock, par value $0.001 per share (the “Common Stock”) at each of the Initial Closing and the
Subsequent Closing and every fourteenth day thereafter at a conversion price equal to the Purchase Price divided by the lower of
(i) the daily volume weighted average of actual trading prices of the Common Stock on the trading market (the “VWAP”)
for the ten consecutive trading days immediately prior to a conversion date multiplied by 0.85 and (ii) the VWAP for the trading
day immediately prior to a conversion date multiplied by 0.88. In the event that the conversion price does not equal or exceed
$0.20 (the “Floor”), as calculated with respect to any subsequent conversion date, then such conversion will not occur
and the shares not converted on that date will be added to the conversion on the following conversion date.



The Agreement contains representations
and warranties and covenants for each party, which must be true and have been performed at each closing. Additionally, the Company
has agreed to indemnify and hold harmless Seaside against certain liabilities in connection with the issuance and sale of the Series
B Preferred Stock under the Agreement.



F-24







The conversion price per share for the
Initial Closing was $.781575, and the Company raised gross proceeds from the offering of $2,500,000, before estimated offering
expenses of approximately $200,000 which includes placement agent and attorneys’ fees. The conversion price per share for
the Subsequent Closing was $.55777 and the Company raised gross proceeds from the offering of $2,500,000, before estimated offering
expenses of approximately $200,000 which includes placement agent and attorneys’ fees.



On June 28, 2012, the Company entered into
an additional Securities Purchase Agreement (the “Agreement”) with Seaside, relating to the offering and sale (the
“Offering”) of up to 5,000 shares of the Company’s Series C Convertible Preferred Stock, par value $0.001 per
share (the “Series C Preferred Stock”) at the purchase price of $1,000.00 per share (the “Purchase Price”).
On June 28, 2012, Seaside purchased an initial 2,500 shares of the Series C Preferred Stock for an aggregate purchase price of
$2,500,000 (the “Initial Closing”). Following the Initial Closing, Seaside will purchase the remaining 2,500 shares
of the Series C Preferred Stock for the purchase price of $2,500,000 (the “Subsequent Closing”).



The conversion price per share for the
Initial Closing of the Series C Preferred Stock was $.49181 and the Company raised gross proceeds from the offering of $2,500,000
before estimated offering expenses of approximately $200,000, which includes placement agents and attorneys’ fees.



The Offerings were made pursuant to the
Company’s shelf registration statement on Form S-3 (File No. 333-165221), which was declared effective by the Securities
and Exchange Commission on April 29, 2010. The Company, pursuant to Rule 424(b) under the Securities Act of 1933, filed with the
Securities and Exchange Commission a prospectus supplement relating to the Offering.



In connection with the Offering, pursuant
to a Placement Agency Agreement entered into by and between Midtown and the Company, as amended by an Underwriter Agent Agreement
Amendment No. 1, dated March 28, 2011 (as amended, the “Placement Agency Agreement”), the Company paid Midtown a cash
fee representing 6% of the gross purchase price paid by Seaside for the Series B Preferred Stock.



During the fiscal year ended June 30, 2012,
Seaside converted the following amounts of Series B Preferred Stock into the Company’s Common Stock:



|Date of Conversion |  | Number of Shares of Series B Converted |        |  | Conversion Price |  |         | Number of Shares of Common Stock Issued Pursuant to Conversion |  |  | Dividend Conversion Price |  |  | Dividend Shares Issued |         |  | Total Number of Shares of Common Stock Issued to Seaside | 
|------------------ |  | -------------------------------------- | ------ |  | ---------------- |  | ------- | -------------------------------------------------------------- |  |  | ------------------------- |  |  | ---------------------- | ------- |  | -------------------------------------------------------- | 
|07/11/2011         |  |                                        | 10,000 |  |                  |  | 1.11129 |                                                                |  |  | 89,986                    |  |  |                        | 1.11129 |  |                                                          | 
|07/26/2011         |  |                                        | 40,000 |  |                  |  | 1.05876 |                                                                |  |  | 377,800                   |  |  |                        | —       |  |                                                          | 
|08/08/2011         |  |                                        | 40,000 |  |                  |  | 0.91494 |                                                                |  |  | 437,187                   |  |  |                        | 0.98167 |  |                                                          | 
|08/23/2011         |  |                                        | 40,000 |  |                  |  | 0.95277 |                                                                |  |  | 419,829                   |  |  |                        | 0.95277 |  |                                                          | 
|09/06/2011         |  |                                        | 40,000 |  |                  |  | 0.94591 |                                                                |  |  | 422,873                   |  |  |                        | 0.94733 |  |                                                          | 
|09/19/2011         |  |                                        | 40,000 |  |                  |  | 0.93534 |                                                                |  |  | 427,652                   |  |  |                        | 0.93534 |  |                                                          | 
|10/03/2011         |  |                                        | 40,000 |  |                  |  | 0.77774 |                                                                |  |  | 514,311                   |  |  |                        | 0.84473 |  |                                                          | 
|10/17/2011         |  |                                        | 10,000 |  |                  |  | 0.69212 |                                                                |  |  | 144,484                   |  |  |                        | 0.75149 |  |                                                          | 
|11/02/2011         |  |                                        | 40,000 |  |                  |  | 0.78158 |                                                                |  |  | 511787                    |  |  |                        | —       |  |                                                          | 
|11/15/2011         |  |                                        | 40,000 |  |                  |  | 0.69133 |                                                                |  |  | 578,595                   |  |  |                        | 0.72539 |  |                                                          | 
|11/29/2011         |  |                                        | 40,000 |  |                  |  | 0.62234 |                                                                |  |  | 642,735                   |  |  |                        | 0.64311 |  |                                                          | 
|12/13/2011         |  |                                        | 40,000 |  |                  |  | 0.53240 |                                                                |  |  | 751,315                   |  |  |                        | 0.56678 |  |                                                          | 
|12/27/2011         |  |                                        | 40,000 |  |                  |  | 0.50635 |                                                                |  |  | 796,785                   |  |  |                        | 0.50635 |  |                                                          | 
|01/10/2012         |  |                                        | 40,000 |  |                  |  | 0.50758 |                                                                |  |  | 788,053                   |  |  |                        | 0.50758 |  |                                                          | 
|01/24/2012         |  |                                        | 10,000 |  |                  |  | 0.47951 |                                                                |  |  | 208,546                   |  |  |                        | 0.48773 |  |                                                          | 
|02/08/2012         |  |                                        | 40,000 |  |                  |  | 0.55777 |                                                                |  |  | 717,142                   |  |  |                        | 0.00000 |  |                                                          | 
|02/22/2012         |  |                                        | 40,000 |  |                  |  | 0.69437 |                                                                |  |  | 576,062                   |  |  |                        | 0.69437 |  |                                                          | 
|03/07/2012         |  |                                        | 40,000 |  |                  |  | 0.63665 |                                                                |  |  | 628,289                   |  |  |                        | 0.63665 |  |                                                          | 
|03/21/2012         |  |                                        | 40,000 |  |                  |  | 0.62894 |                                                                |  |  | 635,991                   |  |  |                        | 0.63827 |  |                                                          | 
|04/11/2012         |  |                                        | 40,000 |  |                  |  | 0.60469 |                                                                |  |  | 661,496                   |  |  |                        | 0.60469 |  |                                                          | 
|04/18/2012         |  |                                        | 40,000 |  |                  |  | 0.50926 |                                                                |  |  | 785,453                   |  |  |                        | 0.53593 |  |                                                          | 
|05/02/2012         |  |                                        | 40,000 |  |                  |  | 0.50415 |                                                                |  |  | 198,354                   |  |  |                        | 0.50873 |  |                                                          | 



F-25







During the fiscal year ended June 30, 2012,
Seaside converted the following amounts of Series C Preferred Stock into the Company’s Common Stock:



|Date of Conversion |  | Number of Shares of Series C Converted |     |  | Conversion Price |  |         | Number of Shares of Common Stock Issued Pursuant to Conversion |  |  | Dividend Conversion Price |  |  | Dividend Shares Issued |   |  | Total Number of Shares of Common Stock Issued to Seaside | 
|------------------ |  | -------------------------------------- | --- |  | ---------------- |  | ------- | -------------------------------------------------------------- |  |  | ------------------------- |  |  | ---------------------- | - |  | -------------------------------------------------------- | 
|06/28/2012         |  |                                        | 147 |  |                  |  | 0.49181 |                                                                |  |  | 298,472                   |  |  |                        | - |  |                                                          | 



Unregistered Securities



In August, 2010, the Scientific Advisory Board (SAB) was granted
warrants to purchase 60,000 shares of common stock at $1.476 per share. These warrants, if not exercised, will expire in August,
2014.  The fair value of these warrants in the amount of $45,000 was recorded as consulting expense



In November, 2010, the Scientific Advisory Board (SAB) was granted
warrants to purchase 60,000 shares of common stock at $1.81 per share. These warrants, if not exercised, will expire in October,
2014.  The fair value of these warrants in the amount of $50,800 was recorded as consulting expense.



On November 1, 2010 the Company authorized the issuance of 30,000
shares of its Series A Convertible Preferred Stock $.001 par value with a restrictive legend pursuant to a consulting agreement
and recorded a consulting expense of $53,935.



On December 10, 2010 the Company authorized the issuance of
25,000 shares of its $.001 par value common stock with a restrictive legend for $25,000 upon the exercise of 25,000 warrants issued
pursuant to a prior year private placement.



On February 4, 2011 the Company authorized the issuance of 25,000
shares of its $.001 par value common stock with a restrictive legend for $25,000 upon the exercise of 25,000 warrants issued pursuant
to a prior year private placement



In February, 2011, the Scientific Advisory Board (SAB) was granted
warrants to purchase 60,000 shares of common stock at $1.47 per share. These warrants, if not exercised, will expire in February,
2015.  The fair value of these warrants in the amount of $54,000 was recorded as consulting expense.



In March, 2011 the Company authorized the issuance of 250,000
shares of its $.001 par value common stock with a restrictive legend pursuant to existing employment agreements and recorded an
expense of $316,250.



In March, 2011 the Company authorized the issuance of 593,750
shares of its Series A Convertible Preferred stock $.001 par value with a restrictive legend pursuant to existing employment agreements
and recorded an expense of $1,418,563.



On April 10, 2011 the Company authorized the issuance of 10,000
shares of its $.001 par value common stock with a restrictive legend for $10,000 upon the exercise of 10,000 warrants issued pursuant
to a prior year private placement.



In May, 2011, the Scientific Advisory Board (SAB) was granted
warrants to purchase 60,000 shares of common stock at $1.632 per share. These warrants, if not exercised, will expire in May, 2015.  The
fair value of these warrants in the amount of $50,400 was recorded as consulting expense.



In August, 2011, the Scientific Advisory Board (SAB) was granted
warrants to purchase 60,000 shares of common stock at $1.41 per share expiring in February ,2015.  These warrants were
valued at $56,400 and recorded as consulting expense.



In November, 2011, the Scientific Advisory Board (SAB) was granted
warrants to purchase 60,000 shares of common stock at $.948 per share expiring in November, 2015.  These warrants were
valued at $56,400 and recorded as consulting expense.



In February, 2012, the Scientific Advisory Board (SAB) was granted
warrants to purchase 60,000 shares of common stock at $1.09 per share expiring in February, 2016.  These warrants were
valued at $51,000 and recorded as consulting expense.



In March, 2012 the Company authorized the
issuance of 593,750 shares of its Series A Convertible Preferred stock $.001 par value with a restrictive legend pursuant to existing
employment agreements and recorded an expense of $634,407.



In March, 2012 the Company authorized the
issuance of 250,000 shares of its $.001 par value common stock with a restrictive legend pursuant to existing employment agreements
and recorded an expense of $181,874.



In May, 2012, the Scientific Advisory
Board (SAB) was granted warrants to purchase 60,000 shares of common stock at $0.79 per share expiring in May,
2016.  These warrants were valued at $47,400 and recorded as consulting expense.



F-26







In June , 2012, the Company's Board of Directors authorized
the issuance of 10,000 shares of its Series A Preferred stock with a restrictive legend pursuant to a Consulting Agreement and
recorded a recorded an expense of $ 3,287.



In June, 2012 the Company authorized the
issuance of 1,050,000 shares of its Series A Convertible Preferred stock $.001 par value with a restrictive legend as additional
stock based compensation for successful prosecution of the Company’s Patent applications and recorded an expense of $345,172.



For the year ended June 30, 2012, the Company's Board of Directors
authorized the issuance of 93,183 shares of its common stock with a restrictive legend for consulting services. The Company recorded
an expense of $72,000.



Note 10 - Stock Options and Warrants



Stock Options



In September 2005, 500,000 stock options were granted to Eugene
Seymour, our CEO under an employment agreement.  Of these options, 250,000 were vested immediately and are exercisable
from September 2005 until September 2015, and the remaining  options vested annually on January 1, 2007 and 2008
in two  equal amounts.



In September 2005, 1,000,000 stock options were granted to Anil
Diwan, our Chairman and President under an employment agreement.  Of these options, 333,333 were vested immediately and
are exercisable from September 2005 until September 2015, and the remaining options vested annually on January 1, 2007 and January
1, 2008 in two equal amounts.



In September 2005, 500,000 stock options were granted to Leo
Ehrlich, our former CFO under an employment agreement. Of these options, 250,000 were vested immediately and are exercisable from
September 2005 until September 2015, and the remaining options vest annually in two equal amounts.   On May 16,
2007, Leo Ehrlich resigned as the Company's Chief Financial Officer. At time of his resignation 375,000 options were vested and
are exercisable from September 2005 until September 2015.The remaining options were forfeited.



The Company has accounted for these options granted to officers
under the provisions of paragraph 718-10-30 of the FASB Accounting Standards Codification.” Based on fair market value of
these options, $7,044 was recognized as stock based compensation expense for the years ended June 30, 2009.  For the
year ended June 30, 2010 and 2011, the Company did not record any compensation expense related to these options.



The following table presents the combined activity of stock
options issued for the years ended June 30, as follows:



|Stock Options                |  | Number of Shares |           |  | Weighted Average Exercise Price per share ($) |   |      | Weighted Average Remaining Contractual Term (years) |  |  | Aggregate Intrinsic Value ($) | 
|---------------------------- |  | ---------------- | --------- |  | --------------------------------------------- | - | ---- | --------------------------------------------------- |  |  | ----------------------------- | 
|Outstanding at June 30, 2007 |  |                  | 1,875,000 |  |                                               | $ | 0.10 |                                                     |  |  | 8.25                          | 
|Granted                      |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Exercised                    |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Expired                      |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Canceled                     |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|                             |  |                  |           |  |                                               |   |      |                                                     |  |  |                               | 
|Outstanding at June 30, 2008 |  |                  | 1,875,000 |  |                                               |   | 0.10 |                                                     |  |  | 7.25                          | 
|Granted                      |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Exercised                    |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Expired                      |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Canceled                     |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|                             |  |                  |           |  |                                               |   |      |                                                     |  |  |                               | 
|Outstanding at June 30, 2009 |  |                  | 1,875,000 |  |                                               |   | 0.10 |                                                     |  |  | 6.24                          | 
|Granted                      |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Exercised                    |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Expired                      |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Canceled                     |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|                             |  |                  |           |  |                                               |   |      |                                                     |  |  |                               | 
|Outstanding at June 30, 2010 |  |                  | 1,875,000 |  |                                               |   | 0.10 |                                                     |  |  | 5.24                          | 
|Granted                      |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Exercised                    |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Expired                      |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Canceled                     |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|                             |  |                  |           |  |                                               |   |      |                                                     |  |  |                               | 
|Outstanding at June 30, 2011 |  |                  | 1,875,000 |  |                                               |   | 0.10 |                                                     |  |  | 4.24                          | 
|Granted                      |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Exercised                    |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Expired                      |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|Canceled                     |  |                  | -         |  |                                               |   | -    |                                                     |  |  | -                             | 
|                             |  |                  |           |  |                                               |   |      |                                                     |  |  |                               | 
|Outstanding at June 30, 2012 |  |                  | 1,875,000 |  |                                               |   | 0.10 |                                                     |  |  | 3.23                          | 



F-27







As of June 30, 2012 there was no unrecognized compensation cost.



Stock Warrants



|Stock Warrants               |  | Number of Shares |            |  | Weighted Average Exercise Price per share ($) |   |      | Weighted Average Remaining Contractual Term (years) |  |  | Aggregate Intrinsic Value ($) | 
|---------------------------- |  | ---------------- | ---------- |  | --------------------------------------------- | - | ---- | --------------------------------------------------- |  |  | ----------------------------- | 
|Outstanding at June 30, 2007 |  |                  | 2,695,000  |  |                                               |   | 1.95 |                                                     |  |  | 1.94                          | 
|Granted                      |  |                  | 1,680,000  |  |                                               |   | 1.00 |                                                     |  |  | 2.25                          | 
|Exercised                    |  |                  | -          |  |                                               |   | -    |                                                     |  |  | -                             | 
|Expired                      |  |                  | -          |  |                                               |   | -    |                                                     |  |  | -                             | 
|Canceled                     |  |                  | -          |  |                                               |   | -    |                                                     |  |  | -                             | 
|                             |  |                  |            |  |                                               |   |      |                                                     |  |  |                               | 
|Outstanding at June 30, 2008 |  |                  | 4,375,000  |  |                                               | $ | 1.58 |                                                     |  |  | 1.49                          | 
|Granted                      |  |                  | 3,983,400  |  |                                               |   | 1.42 |                                                     |  |  | 2.67                          | 
|Exercised                    |  |                  | 930,250    |  |                                               |   | -    |                                                     |  |  | -                             | 
|Expired                      |  |                  | -          |  |                                               |   | -    |                                                     |  |  | -                             | 
|Canceled                     |  |                  | -          |  |                                               |   | -    |                                                     |  |  | -                             | 
|                             |  |                  |            |  |                                               |   |      |                                                     |  |  |                               | 
|Outstanding at June 30, 2009 |  |                  | 7,428,150  |  |                                               |   | 1.53 |                                                     |  |  | 1.78                          | 
|Granted                      |  |                  | 5,352,550  |  |                                               |   | 1.00 |                                                     |  |  | 2.67                          | 
|Exercised                    |  |                  | 1,553,750  |  |                                               |   | -    |                                                     |  |  | -                             | 
|Expired                      |  |                  | -          |  |                                               |   | -    |                                                     |  |  | -                             | 
|Canceled                     |  |                  | -          |  |                                               |   | -    |                                                     |  |  | -                             | 
|                             |  |                  |            |  |                                               |   |      |                                                     |  |  |                               | 
|Outstanding at June 30, 2010 |  |                  | 11,226,950 |  |                                               |   | 1.16 |                                                     |  |  | 1.90                          | 
|Granted                      |  |                  | 230,000    |  |                                               |   | -    |                                                     |  |  | -                             | 
|Exercised                    |  |                  | 35,000     |  |                                               |   | -    |                                                     |  |  | -                             | 
|Expired                      |  |                  |            |  |                                               |   | -    |                                                     |  |  | -                             | 
|Canceled                     |  |                  | -          |  |                                               |   | -    |                                                     |  |  | -                             | 
|                             |  |                  |            |  |                                               |   |      |                                                     |  |  |                               | 
|Outstanding at June 30, 2011 |  |                  | 11,421,950 |  |                                               |   | 1.17 |                                                     |  |  | 0.95                          | 
|Granted                      |  |                  | 240,000    |  |                                               |   | -    |                                                     |  |  | -                             | 
|Exercised                    |  |                  |            |  |                                               |   | -    |                                                     |  |  | -                             | 
|Expired                      |  |                  |            |  |                                               |   | -    |                                                     |  |  | -                             | 
|Canceled                     |  |                  | -          |  |                                               |   | -    |                                                     |  |  | -                             | 
|                             |  |                  |            |  |                                               |   |      |                                                     |  |  |                               | 
|Outstanding at June 30, 2012 |  |                  | 11,661,950 |  |                                               |   | 1.16 |                                                     |  |  | 1.69                          | 



Of the above warrants, 11,181,950 expire in fiscal year ending
June 30, 2014; 240,000 expire in fiscal year ending June 30, 2015; and 240,000 expire in fiscal year ended June 30, 2016.



Note 11 - Income Tax Provision



Deferred Tax Assets



Deferred tax assets arise from the temporary
differences between financial statements and income tax recognition of net operating losses. The net operating loss carry-forwards
will begin to expire in the year 2017 if not utilized. Utilization of the Company's net operating loss carry-forwards are limited
based on changes in ownership as defined in Internal Revenue Code Section 382. As of June 30, 2011 the Company accumulated a tax
loss of $13,973,931 resulting in a deferred tax benefit of approximately $8,750,309, which has been offset by a 100% valuation
allowance.



F-28







The following is reconciliation of income
tax expense (benefit):



|                                  |  | June 30, 2012 |            |   | June 30, 2011 |   |            | June 30, 2010 | 
|--------------------------------- |  | ------------- | ---------- | - | ------------- | - | ---------- | ------------- | 
|Net operating loss carry-forwards |  | $             | 4,283,519  |   |               | $ | 4,283,519  |               | 
|Research and development credit   |  |               | 2,764,875  |   |               |   | 2,764,875  |               | 
|Other                             |  |               | 1,701,915  |   |               |   | 1,701,915  |               | 
|Gross deferred tax assets         |  |               | 8,750,309  |   |               |   | 8,750,309  |               | 
|Valuation allowances              |  |               | (8,750,309 | ) |               |   | (8,750,309 | )             | 
|Deferred tax assets, net          |  | $             | -          |   |               | $ | -          |               | 



During the fiscal year ended June 30, 2012,
2011 and 2010, the valuation allowance increased by $2,206,785, $2,283,969, and $1,755,340, respectively.



During the fiscal years ended on June 30,
2012, 2011, and 2010 the Company recognized a refundable Research and Development tax credit of $0, $0 and $162,524 respectively,
and has received, to date, $162,524 of this refundable credit .



Note 12 – Credit risk



Credit Risk



Financial instruments that potentially subject the Company to
significant concentration of credit risk consist primarily of cash and cash equivalents.  As of June 30, 2012, substantially
all of the Company’s cash and cash equivalents were held by major financial institutions and the balance at certain accounts
exceeded the maximum amount insured by the Federal Deposits Insurance Corporation (“FDIC”).  However, the
Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks
on such accounts.



Note 13 - Commitments and Contingencies



Operating Lease



The Company’s principal executive offices are located
at 135 Wood Street, West Haven, Connecticut, and include approximately 7,000 square feet of office and laboratory space at a base
monthly rent of $8,695. The term of lease expires in February 28, 2011, and is now on a month-by-month basis.



Total rent expense amounted to $110,633, $101,840 and $82,729
for the fiscal year ended June 30, 2012, 2011 and 2010, respectively.



Litigation



On or around December 22, 2011, the Connecticut
Secretary of the State, as agent for service of process for the Company, was served with a Summons and Complaint in the case entitled
David F. Gencarelli, Esq. d/b/a Gencarelli Group v. Nanoviricides, Inc. (Case No. 2011-CA-006555-B) filed in the Superior Court
for the District of Columbia Civil Division.  The Complaint for breach of contract, unjust enrichment, and quantum merit claims
unpaid legal fees of $77,601.00. The Company and David Gencarelli, Esq. have agreed, in principal, to a settlement, of $40,000
to resolve all claims.



On or around January 18, 2012, the Nevada
Agency and Transfer Company, as agent for service of process for the Company in Nevada, was served with a Summons and Complaint
in the case entitled Yidam, Ltd. v. Eugene Seymour, Anil Diwan, and Nanoviricides, Inc. (Case No. A-12-654437-B) answerable in
the Eighth Judicial District Court of the State of Nevada – Clark County (“Court”).  The Complaint seeks
to compel inspection of the Company’s books and records.  On or about February 14, 2012 we filed a Motion to Dismiss
the Complaint for failure to state a claim upon which relief can be granted.  The Complaint further seeks unspecified “injunctive
relief” in furtherance of the demand for inspection to which it is not entitled.  The Complaint by a holder of less
than 1 percent of the common stock of the Company seeks to, inter alia, inspect documents and records of the company to which it
is not entitled and in a form and manner the Company argues is not authorized by statute.  Management believes that this lawsuit
has no merit or basis and intends to vigorously defend it.  Monetary damages have not been claimed and as a result no accrual
has been made in relation to this litigation. On April 9, 2012, the Court dismissed the Complaint for failure to state a Claim
for which relief could be granted.



F-29







On or around April 13, 2012, the Nevada
Agency and Transfer Company, as agent for service of process for the Company in Nevada, was served with a Summons and Complaint
in the case entitled Yidam, Ltd. v. Eugene Seymour, Anil Diwan, and Nanoviricides, Inc. ((Case No. A-12-659535-B) answerable in
the Eighth Judicial District Court of the State of Nevada – Clark County (“Court”).  The Complaint seeks
to compel inspection of the Company’s books and records.  On or about May 2, 2012 we filed a Demand for Security of
Costs. Upon filing of the Demand, proceedings relative to the Company are stayed pending posting of the demanded security
(or plaintiff engages in motion practice about the Demand).  30 days (+3 for mailing) from service, the Company may seek dismissal
of the complaint if plaintiff has not posted the demanded security (or engaged the court).  the Company will have 10 days
after service of notice of posting within which to answer or otherwise respond to the complaint The Complaint further seeks unspecified
“injunctive relief” in furtherance of the demand for inspection to which it is not entitled.  The Complaint, by
a holder of less than 1 percent of the common stock of the Company, seeks to, inter alia, inspect documents and records of the
company to which it is not entitled and in a form and manner the Company argues is not authorized by statute.  Management
believes that this lawsuit has no merit or basis and intends to vigorously defend it.  Monetary damages have not been claimed
and as a result no accrual has been made in relation to this litigation



Officers’ Compensation



On March 3, 2010, the Company entered into employment agreements
with its two executive officers, Eugene Seymour, Chief Executive Officer and Chief Financial Officer and Anil Diwan, President
and Chairman of Board.  Both agreements provide a minimum annual base salary of $250,000 for a term of four years. In
addition, Dr. Seymour and Dr. Diwan are eligible for an increase in base salary to $275,000 if the Company consummates a financing
with gross proceeds of at least $5,000,000.  Also, the base salary shall increase to $300,000 for Dr. Seymour and $300,000
for Dr. Diwan if the Company becomes listed on a national stock exchange.



As additional compensation under the employment agreements,
the Company issued 250,000 shares of the Company’s Series A Convertible Preferred Stock and shall issue an additional 250,000
shares of Series A Convertible Preferred Stock on each anniversary of the respective employment agreements.



On March 3, 2010, the Company entered into an employment agreement
with Dr. Jayant Tatake to serve as Vice President of Research and Development.  The employment agreement provides for
term of four years with a base salary of $150,000.  In addition, the Company issued 93,750 shares of Series A Convertible
Preferred Stock and 125,000 shares of common stock, and will issue an additional 93,750 shares of Series A Convertible Preferred
Stock and 125,000 shares of common stock on each anniversary date of the agreement.



On March 3, 2010, the Company entered into an employment agreement
with Dr. Randall Barton to serve as Chief Scientific Officer.  The employment agreement provides for term of four years
with a base salary of $150,000.  In addition, the Company issued 125,000 shares of common stock, and will issue an additional
125,000 shares of common stock on each anniversary date of the agreement.



Other Contingencies



The Company is dependent upon its license agreement with TheraCour
Pharma, Inc. (See Note 4).  If it loses the right to utilize any of the proprietary information that is the subject
of the TheraCour Pharma license agreement on which it depends, the Company will incur substantial delays and costs in development
of its drug candidates.



While no legal actions are currently pending, the Company may
be party to certain claims brought against it arising from certain contractual matters. It is not possible to state the ultimate
liability, if any, in these matters. In management’s opinion, the ultimate resolution of any such claim will not have a material
adverse effect on the financial position of the Company.



Note 14 - Subsequent Events



Management performed an evaluation of the Company’s activity
through the date these financials were issued to determine if they must be reported. The Management of the Company determined that
there were no reportable subsequent events to be disclosed.



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