NANOVIRICIDES INC

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

Note 1 – Organization and Nature of Business

NanoViricides, Inc. (the “Company”) is a clinical stage nano-biopharmaceutical company specializing in the discovery, development, and commercialization of drugs to combat viral infections using its unique and novel nanomedicines technology. NanoViricides possesses its own state of the art facility that supports research and development and drug discovery, drug candidate optimization, cGMP-compliant drug substance manufacturing, cGMP-compliant manufacturing and packaging of drug products for human clinical trials, and early commercialization. The Company has several drugs in various stages of development. The Company’s lead drug candidate NV-387, formulated as the drug product NV-CoV-2, has recently completed Phase 1a/1b clinical trial for the assessment of human safety and tolerability upon increasing single and multiple dosings. This Phase 1a/1b clinical trial is sponsored by our licensee and collaborator in India, Karveer Meditech Private Limited (KMPL). NV-CoV-2 contains the nanoviricide active pharmaceutical ingredient (API) called NV-387.

Additionally, the Company has previously developed a clinical drug candidate, NV-HHV-1 formulated as skin cream, for the treatment of Shingles. The Company plans on taking NV-HHV-1 into human clinical trials, and further develop the HerpeCide™ program after clinical trials of NV-387. In the HerpeCide program alone, the Company has drug candidates against at least five indications at different stages of development. The Company’s drug candidates against HSV-1 “cold sores” and HSV-2 “genital herpes” are in advanced pre-clinical studies and are expected to follow the shingles drug candidate into human clinical trials. In addition, the Company has drugs in development against all Influenzas including Bird Flu H5N1 in its FluCide™ program, as well as drug candidates against HIV/AIDS, Dengue, Ebola/Marburg, and other viruses.

The Company’s drugs are based on several patents, patent applications, provisional patent applications, and other proprietary intellectual property held by TheraCour Pharma, Inc., a related party substantially owned by Dr. Anil Diwan, (“TheraCour”), to which the Company has broad, exclusive licenses. The licenses are to entire fields and not to specific compounds. In all, the Company has exclusive, worldwide licenses 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-1 and HSV-2), Influenza and Asian Bird Flu Virus, Dengue viruses, Ebola/Marburg viruses, Japanese Encephalitis virus, viruses causing viral Conjunctivitis (a disease of the eye) and Ocular Herpes (restated), Varicella Zoster Virus (“VZV”) infections (i.e. Shingles and Chickenpox), and SARS-CoV-2 infections. In all cases, the discovery of ligands and polymer materials as well as formulations, the chemistry and chemical characterization, and process development and related work will be performed by TheraCour under the same compensation terms as prior agreements between the parties, with no duplication of costs allowed. Upon commercialization, NanoViricides will pay 15% of net sales to TheraCour. Milestone payments were made or are specified in certain of the license agreements, details of which have been disclosed at the time the agreements were entered into. The Company negotiates and licenses specific verticals of therapeutic applications from TheraCour if promising drug candidates are found in early research and development against a virus target. TheraCour has not denied any such licenses when requested.

The Company’s business plan is based on developing the drug candidates into regulatory approvals, and partnering and sub-licensing for commercialization of the drugs whenever possible.

The Company has out-licensed NV-CoV-2 and NV-CoV-2-R for further clinical drug development and commercialization in the territory of India to KMPL, a company of which Dr. Anil Diwan is a passive investor and advisor. KMPL sponsored NV-CoV-2 for human clinical trials and obtained regulatory approvals in India. KMPL retained a local clinical research organization (CRO) to conduct the clinical trials. The Phase1a/1b human clinical trial of NV-CoV-2 began in India on June 17, 2023. The clinical trial drug products, NV-CoV-2 Oral Syrup, and NV-CoV-2 Oral Gummies, were manufactured at the Company’s Shelton campus, and then shipped to and received by KMPL. Under the agreement with KMPL, the Company will pay for the expenses of the clinical trials, and in return will benefit from having the data and reports made available for regulatory filings in other territories of the world. Upon commercialization, the Company will receive royalties from KMPL equal to 70% of sales less costs to unaffiliated third parties.

Note 2 - Liquidity

The Company’s condensed financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. As reflected in the condensed financial statements, the Company has an accumulated deficit at March 31, 2024 of approximately $137.0 million, a net loss of approximately $5.9 million and net cash used in operating activities of approximately $4.8 million for the nine months then ended. In addition, the Company has not generated any revenues andno 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 March 31, 2024, the Company had available cash and cash equivalents of approximately $3.3 million. Management believes that the Company’s existing resources, including availability under its $2 million line of credit will not be sufficient to fund the Company’s planned operations and expenditures for at least 12 months from the date of the filing of this Form 10-Q. As a result substantial doubt exists about the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent upon controlling its overall expenses and identifying and securing additional financing. Management has considered several options for financing the net working capital deficit as well as to obtain additional funds that will be needed for future human clinical trials. Management believes that the Company will be achieving several important milestones, including release of the Phase I clinical trial report, a pre-IND application for use of NV-387 in RSV infections as an antiviral, and clinical trial applications (including US FDA IND) for use of NV-387 to treat RSV and other important respiratory diseases, in the ensuing year. Management believes that as it achieves these milestones, the Company would likely experience improvement in the liquidity of the Company’s stock, and would improve the Company’s ability to raise funds on the public markets at terms that may be more favorable to the terms presently offered to the Company. Management believes that it has on-going access to the capital markets under an “At-The-Market” (ATM) agreement with EF Hutton that became active in April 2024. Management believes that the Company’s stock is currently substantially undervalued in contrast to its asset value, based on the potential of NV-387 alone. Management believes that as the Company’s investor outreach program expands and bears fruit, this deviation should be lessened, enabling the Company to access public markets for equity funding at reasonable valuations. In addition, Management has already begun soliciting funds by mortgaging its existing fully owned campus and cGMP manufacturing facilities in Shelton, CT, in order to free up a portion of the fixed capital for use as liquid working capital. However, there is no guarantee that the Company will be able to raise funds on terms acceptable to it, or at all.

In addition, Management continues to adjust its planned expenditures, activities, and programs, in accordance with budgetary constraints and in accordance with its expectations of obtaining additional financing. Management is also taking steps for seeking to license NV-387 to potential partners. Such licenses, if effected, would likely result in an initial payment at signing, milestone payments as the program advances, and royalty payments from future sales. The Company does not currently have a licensed partner other than KMPL and there is no guarantee that the Company can enter into such licensing agreement that provides substantial cash value to the Company.

There can be no assurance that the Company will be able to raise the necessary capital or that it will be on acceptable terms. Similarly, there can be no assurance that the Company can enter into licensing agreement(s) that provide(s) substantial cash value to the Company. The accompanying unaudited financial statements do not include any adjustments that may result from the outcome of these uncertainties.

Note 3 - Summary of Significant Accounting Policies

Basis of Presentation – Interim Financial Information

The accompanying unaudited interim condensed financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission for Interim Reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed financial statements furnished reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. The accompanying condensed financial statements and the information included under the heading “Management’s Discussion and Analysis or Plan of Operation” should be read in conjunction with the

Company’s audited financial statements and related notes included in the Company’s Form 10-K for the fiscal year ended June 30, 2023 filed with the SEC on October 13, 2023.

The June 30, 2023 year-end balance sheet data in the accompanying interim condensed financial statements was derived from the audited financial statements.

For a summary of significant accounting policies, see the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023 filed on October 13, 2023.

Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is computed by dividing net 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, warrants and convertible preferred stock.

The following table shows the number of potentially outstanding dilutive common shares excluded from the diluted net loss per common share calculation, as they were anti-dilutive:

The Company has 892,238 shares of Series A preferred stock outstanding as of March 31, 2024. Only in the event of a “change of control” of the Company is each Series A preferred share is convertible to 3.5 shares of its new common stock. A “change of control” is defined as an event in which the Company’s shareholders become 60% or less owners of a new entity as a result of a change of ownership, merger or acquisition of the Company or the Company’s intellectual property. In the absence of a change of control event, the Series A preferred stock is not convertible into common stock, and does not carry any dividend rights or any other financial effects. At March 31, 2024, the number of potentially dilutive shares of the Company’s common stock into which these Series A preferred shares can be converted into is 3,122,834, and is not included in diluted earnings per share since the shares are contingently convertible only upon a change of control.

Note 4 - Related Party Transactions

Related Parties

Related parties with whom the Company had transactions are:

License Milestone Fee – Related Party

On September 9, 2021, the Company entered into a COVID-19 License Agreement with TheraCour to use, promote, offer for sale, import, export, sell and distribute drugs that treat COVID-19 infections, using TheraCour’s proprietary as well as patented technology and intellectual property. Pursuant to such license agreement, the Board of Directors authorized the issuance of 100,000 fully vested shares of the Company’s Series A preferred stock as a license milestone payment and recorded an expense to research and development of $935,088 for the year ended June 30, 2022. On April 20, 2023, the Company was notified that the Company’s licensee, KMPL was authorized to enter into Phase 1a/1b clinical trials of its COVID, NV-CoV-2 Oral Syrup and its NV-CoV-2 Oral Gummies after satisfying the conditions of a conditional authorization received on or about January 27, 2023. Pursuant to the COVID-19 License Agreement a milestone payment of 50,000 fully vested shares of the Company’s Series A preferred stock was issued as a license milestone payment and recorded as an expense to research and development of approximately $157,000 for the year ended June 30, 2023 representing the fair value of the shares on the date of grant. On June 19, 2023, the Company was notified that the Company’s licensee, KMPL had commenced volunteer recruitments for Phase 1a/1b clinical trials of the NV-CoV-2 Oral Syrup and NV-CoV-2 Oral Gummies. Pursuant to the COVID-19 License Agreement a milestone payment of $1,500,000 became due 5 days thereafter and was recorded as a non-current liability and research and development expense at June 30, 2023.

On July 19, 2023, the Company entered into an agreement with TheraCour, to accept the Company’s unsecured convertible promissory note (the “Note”) in payment of the milestone award. The Note accrues simple interest at the rate of 12% per annum and is due and payable on January 19, 2025, the maturity date. The principal of the Note is convertible, at TheraCour’s option, into 331,859 shares of the Company’s Series A preferred stock, par value $0.00001 at the conversion price, specified as the fair value of the Series A shares on July 19, 2023 in the terms and conditions contained within the Note. On October 27, 2023 TheraCour exercised its right to convert the principal of the Note into 331,859 shares of the Company’s Series A preferred stock. Furthermore, TheraCour cancelled all of the accrued interest on the Note totaling $49,808 which has been reported as a capital transaction credit to additional paid in capital on the accompanying condensed statements of changes in stockholders’ equity. Total interest incurred under the Note for the three and nine months ended March 31, 2024 was $0 and $49,808, respectively.

On February 13, 2024, the Company and TheraCour amended the COVID-19 License Agreement (the “Amendment”). The Amendment provides that the as yet unearned and unremitted cash awards specified in the COVID-19 License Agreement for milestone payments shall not be due and payable until the Company achieves a Revenue Event which shall mean, but not be limited to, the receipt of revenue by the Company generated from, but not limited to, sources such as (1) research and development grants, government contracts, non-profit organizations and other sources to the extent that the amount of Recognized Revenue (as defined in the Amendment) is only considered to be the profit portion of Revenue Event, if any; (2) licensing of third-party development partnerships to the extent Recognized Revenue is considered to include only the profit or retained earnings portion received from such deals (and exclude any at-cost-reimbursements); (3) drug commercialization wherein recognized revenue shall be the amount of gross profit (i.e., net sales less cost of net sales); or (4) other sources of revenue such as gross profits from private contract work. Additionally, the Amendment provides that no more than 50% of the Recognized Revenue shall be applied for remitting such consideration at the time of payment. Further the Amendment clarifies that financing raised by the Company from sale of equity, mortgage or debt transactions, and such other instruments shall not be regarded as Recognized Revenue.

Line of Credit - Related Party

On November 13, 2023, the Company’s President and CEO, Dr. Anil R. Diwan, entered into a Line of Credit Agreement whereby Dr. Diwan agreed to provide a standby Line of Credit to the Company in the maximum amount of $2,000,000. All amounts outstanding under the Line of Credit, including principal, accrued interest and other fees and charges, will be due and payable on December 31, 2025. Amounts drawn down under the Line of Credit shall bear interest at a fixed rate of 12%. Advancements under the Line of Credit will be collateralized by an Open End Mortgage Deed on the Company’s real property at 1 Controls Drive, Shelton, Connecticut and a Chattel Mortgage (U.C.C - 1 filing) against the Company’s equipment and fixtures. Any draw down under the Line of Credit requires the approval of the Company’s Board of Directors. On February 12, 2024 the Company, pursuant to Article 2.5 of the Company’s Line of Credit Agreement with Dr. Anil R. Diwan, signed an Extension Agreement which extended the maturity of the Company’s Line of Credit from December 31, 2024 to December 31, 2025. There were no other amendments to the original Line of Credit. The Company has not drawn against the Line of Credit facility as of March 31, 2024.

Note 5 - Property and Equipment

Property and equipment, stated at cost, less accumulated depreciation consisted of the following:

Depreciation expense for the three months ended March 31, 2024 and 2023 was $187,889 and $186,255, respectively, and for the nine months ended March 31, 2024 and 2023 was $562,209 and $552,445, respectively.

Note 6 – Intangible Assets

Intangible assets, net consists of the following:

Amortization expense amounted to $2,067 and $2,067 for the three months ended March 31, 2024 and 2023, respectively, and for the nine months ended March 31, 2024 and 2023 were $6,202 and $6,202, respectively.

NanoViricides, Inc.’s intangible assets include acquired licenses and capitalized patent costs representing legal fees associated with filing patent applications. Intangible assets with finite lives, licenses and patent costs, are amortized using the straight- line method over the estimated economic lives of the assets, which range from seventeen totwenty years. The Company’s intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Intangible assets determined to have indefinite useful lives, primarily patent costs, are not amortized but are tested for impairment annually, or more frequently if events or changes in circumstances indicate the asset may be impaired. The Company accounts for patent costs in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 350-30,General Intangibles Other than Goodwill. The Company will begin amortizing the patent costs when they are brought to the market or otherwise commercialized.

The Company does assess the recoverability of intangible assets with indefinite lives annually in the fourth quarter of each fiscal year, or more often if indicators warrant, by determining whether the fair value of each of the intangible assets, as a unit, supports its carrying value. In accordance with ASC 350, each year the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of each license is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments.

Note 7 – Accrued Expenses

Accrued expenses consisted of the following:

Note 8 - Equity Transactions

On October 6, 2023, the Company and Dr. Anil Diwan executed an extension of his employment agreement for a period ofone year from July 1, 2023 through June 30, 2024 under the same general terms and conditions. The Company granted Dr. Anil Diwan an award of 10,204 shares of the Company’s Series A preferred stock. The shares shall be vested in quarterly installments of 2,551 shares on September 30, 2023, December 31, 2023, March 31, 2024 and June 30, 2024 and are subject to forfeiture. The Company recognized non-cash compensation expense related to the issuance of the Series A preferred stock of $8,125 and $24,374, respectively for the three and nine months ended March 31, 2024. The balance of $8,125 will be recognized as the remaining 2,551 shares vest and service is rendered for the remaining three months ended June 30, 2024.

For the three and nine months ended March 31, 2024, the Company’s Board of Directors authorized the issuance of 1,727 and 2,501, respectively of fully vested shares of its Series A preferred stock for employee compensation. The Company recorded expense of $6,064 and $8,791, respectively for the three and nine months ended March 31, 2024 related to these issuances.

There is currently no market for the shares of Series A preferred stock and they can only be converted into shares of common stock upon a change of control of the Company as more fully described in the Certificate of Designation. The Company, therefore, estimated the fair value of the Series A preferred stock granted to various employees and others on the date of grant. The conversion of the shares is triggered by a change of control. The fair value of the Series A Convertible preferred stock at each issuance was estimated based upon the price of the Company’s common stock after an application for a reasonable discount for lack of marketability.

For the three and nine months ended March 31, 2024, the Company’s Board of Directors authorized the issuance of 1,786 fully vested shares of its common stock with a restrictive legend for employee compensation. The Company recorded an expense of $2,340 for the three and nine months ended March 31, 2024, which is reflective of the fair value of the common stock on the date of issuance.

In August 2023, the Scientific Advisory Board was granted fully vested warrants to purchase 286 shares of common stock with an exercise price of $1.63 per share expiring in August 2027 and in November 2023 fully vested warrants to purchase 286 shares of common stock with an exercise price of $1.55 per share expiring in November 2027 and in February 2024 fully vested warrants to purchase 286 shares of common stock with an exercise price of $1.44 per share expiring in February 2028. The fair value of the warrants was $131 for the three months ended March 31, 2024 and $437 for the nine months ended March 31, 2024 and was recorded as consulting expense.

The Company estimated the fair value of the warrants granted to the Scientific Advisory Board on the date of grant using the Black-Scholes Option-Pricing Model with the following assumptions:

For the three and nine months ended March 31, 2024, the Company’s Board of Directors authorized the issuance of 23,613 and 86,095, respectively, fully vested shares of its common stock with a restrictive legend for consulting and legal services. The Company recorded expense of $27,000 and $104,600, respectively, for the three and nine months ended March 31, 2024, which is reflective of the fair value of the common stock on the dates of issuance.

For the three and nine months ended March 31, 2024, the Company’s Board of Directors authorized the issuance of 9,825 and 27,489, fully vested shares of its common stock with a restrictive legend for director services, respectively. The Company recorded an expense of $11,250 and $33,750 for the three and nine months ended March 31, 2024, which is reflective of the fair value of the common stock on the dates of issuance.

Note 9 - Common Stock Warrants

Of the outstanding warrants at March 31, 2024,572 expire in fiscal year ending June 30, 2024,2,287 expire in fiscal year ending June 30, 2025,2,287 warrants expire in the fiscal year ending June 30, 2026,1,144 warrants expire in the fiscal year ending June 30, 2027 and 858 warrants expire in the fiscal year ending June 30, 2028.

Note 10 - Commitments and Contingencies

Legal Proceedings

From time to time, the Company is subject to various legal proceedings arising in the ordinary course of business, including proceedings for which the Company has insurance coverage. There are no pending 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 that it believes will have a material adverse effect to its business, financial position, results of operations, or liquidity.

Employment Agreements

On October 6, 2023, the Company and Dr. Diwan, the Company’s President and Chief Executive Officer, executed an extension of his employment agreement for a period ofone year from July 1, 2023 through June 30, 2024 under the same general terms and conditions. The Company granted Dr. Anil Diwan an award of 10,204 shares of the Company’s Series A preferred stock. The shares will be deemed partially vested in quarterly installments following the grant date and fully vested on June 30, 2024.

On August 21, 2023, the Company’s Board of Directors approved the extension of the agreement with Meeta Vyas, Chief Financial Officer of the Company. On October 6, 2023, Company and Meeta Vyas signed an extension of the agreement for a period ofone year from July 1, 2023 through June 30, 2024 under the same general terms and conditions as the current agreement, except that she will be additionally compensated for up to 50% of all medical insurance costs, not to exceed $2,500 per month.

License Agreements

The Company is dependent upon its license agreements with TheraCour (See Notes 1 and 4). If the Company lost the right to utilize any of the proprietary information that is the subject of the TheraCour license agreement on which it depends, the Company will incur substantial delays and costs in development of its drug candidates. On November 1, 2019, the Company entered into a VZV License Agreement with TheraCour for an exclusive license for the Company to use, promote, offer for sale, import, export, sell and distribute products for the treatment of VZV derived indications. Process development and related work will be performed by TheraCour under the same compensation terms as prior agreements between the parties, with no duplication of costs allowed.

On September 9, 2021, the Company entered into a COVID-19 License Agreement to use, promote, offer for sale, import, export, sell and distribute drugs that treat COVID-19 infections, using TheraCour’s proprietary as well as patented technology and intellectual property. The discovery of ligands and polymer materials as well as formulations, the chemistry and chemical characterization, as well as process development and related work will be performed by TheraCour under the same compensation terms as prior agreements between the parties, with no duplication of costs allowed.

On March 27, 2023 the Company entered into a License Agreement with KMPL wherein the Company granted to KMPL a limited, non-transferable, exclusive license for the use, sale, or offer of sale in India of the Company’s two clinical test drug candidates titled as NV-CoV-2 and NV-CoV-2-R for the treatment of COVID in patients in India. KMPL has engaged in further drug development in India including sponsoring of drug candidates for human clinical trials in India and has acted as clinical trials manager for such clinical trials. KMPL shall provide NanoViricides with all reports of the clinical trials and the Company can use such reports for further advancement of the drug candidates with regulatory authorities outside India. In consideration, KMPL will be reimbursed by the Company for all direct and indirect costs incurred for the clinical trials and development activities with a customary clinical trials manager fee of thirty percent (30%) of such costs and applicable taxes. Upon commercial sales of any resulting approved drugs, KMPL will pay the Company a royalty of seventy (70%) percent of the final invoiced sales to unaffiliated third parties.