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 financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction
with the Company’s Annual Report on Form 10-K for the year ended June 30, 2021. 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 that enabled
creation of drugs engineered specifically to combat viral diseases in humans. This exclusive license from TheraCour serves as a
foundation for our intellectual property. The Company was granted a worldwide exclusive license to this technology for several drugs
with specific targeting mechanisms 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-1 and HSV-2), Influenza and Asian Bird Flu
Virus. The Company entered into an Additional License Agreement with TheraCour granting the Company the exclusive licenses for
technologies developed by TheraCour for the additional virus types: 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 completed a
license agreement for the field of VZV indications in November 2019 from TheraCour. The Company completed a license agreement
for the field of human Coronavirus indications in September 2021 from TheraCour. TheraCour has not denied any licenses sought by the
Company in the past.
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The Company discloses the risk that the Company may want to add further
virus types to its drug pipeline as the Company progresses further. The Company would then need to negotiate with TheraCour appropriate
license agreements 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.
The licenses granted by TheraCour are for entire
set of pathologies that the licensed virus is a causative agent for. The licenses are not for single drug/indication pairs, which is the
customary mode of licensing in the Pharmaceutical industry. Thus these are very broad licenses and enable NanoViricides to pursue a number
of indications as well as develop drug candidates with different characteristics as is best suited for the indications, without having
to license the resulting drugs for each indication separately, as with normal pharmaceutical industry licensing.
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 have 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.
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, 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.
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, or an effective drug may be developed by competitors that becomes difficult
to compete against with our limited resources. Our goal, which we can give no assurance that we will achieve, is for NanoViricides, Inc.
to become the premier company developing highly safe and effective drugs that employ an integrated multiplicity of actions as enabled
by our nanomedicine approach for anti-viral therapy.
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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 animal models of efficacy and safety. 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.
Current Financial Status
NanoViricides technology is now maturing rapidly
toward clinical drug trials, with the new facility, expanded staff, and the financial strength that we have attained since uplisting to
NYSE-MKT (now NYSE American) in September 2013.
As of June 30, 2021, the end of the reporting
period, we had $20,516,677 in cash and cash equivalents, prepaid expenses of $307,102 and $9,084,901 of property and equipment, net of
accumulated depreciation. Our liabilities at June 30, 2021 are $351,146 including a short term loan payable of $95,306 payable to BankDirect,
accounts payable of $200,016 payable to third parties and accounts payable to TheraCour of $31,539. Stockholders’ equity was $29,911,167
at June 30, 2021. In comparison, as of June 30, 2020, we had $13,708,594 in cash and cash equivalents, prepaid expenses of $277,063
and property and equipment was $9,544,431, net of accumulated depreciation. Our liabilities at June 30, 2020 were $2,156,377, accounts
payable of $380,727 payable to third parties, and accounts payable to TheraCour of $561,580 of which $200,000 is deferred until an IND
filing. Stockholders’ equity was $21,757,962 at June 30, 2020.
During the year ended June 30, 2021, we spent
approximately $8.2 million in cash toward operating activities and approximately $239,000 in capital investment. In contrast, we spent
approximately $6.7 million in cash toward operating activities and approximately $8,600 in capital investment in the year ended June 30,
2020. We anticipate capital costs of approximately $200,000 in the next twelve months.
As of June 30, 2021, we have a cash and cash
equivalent balance of $20,516,677 that is expected to be sufficient to fund our currently budgeted operations for more than one year from
the filing of the Company’s Form 10K. Additionally, on July 8, 2020, the Company
entered into an underwriting agreement (the “Underwriting Agreement”) with Kingswood Capital Markets, a Division of Benchmark
Investments, Inc. (“Kingswood”). The offering was consummated on July 10, 2020, whereby the Company sold 1,369,863 shares
of Common Stock and a fully exercised Underwriters’ over-allotment option of 205,479 additional shares the public offering price
of $7.30 per share. No warrants were issued in this Offering. The net proceeds to the Company from the offering was approximately $10.4
million after deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company.
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On July 31, 2020, the Company entered into
an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. and Kingswood Capital
Markets, a division of Benchmark Investments, Inc. (each a “Sales Agent” and collectively, the “Sales
Agents”), pursuant to which the Company may offer and sell, from time to time, through or to the Sales Agents, shares of
Common Stock (the “Placement Shares”), having an aggregate offering price of up to $50 million (the “ATM
Offering”). Sales pursuant to the Sales Agreement will be made only upon instructions by the Company to the Sales Agents, and
the Company cannot provide any assurances that it will issue any Shares pursuant to the Sales Agreement. Actual sales will depend on
a variety of factors to be determined by the Company from time to time, including (among others) market conditions, the trading
price of the Company’s Common Stock, capital needs and determinations by the Company of the appropriate sources of funding for
the Company. The Company is not obligated to make any sales of Common Stock under the Sales Agreement and the Company cannot provide
any assurances that it will issue any shares pursuant to the Sales Agreement. The Company will pay a commission rate of up to 3.5%
of the gross sales price per share sold and agreed to reimburse the Sales Agents for certain specified expenses, including the fees
and disbursements of its legal counsel in an amount not to exceed $50,000 and have agreed to reimburse the Sales Agents an amount
not to exceed $2,500 per quarter during the term of the Sales Agreement for legal fees to be incurred by the Sales Agents. The
Company has also agreed pursuant to the Sales Agreement to provide each Sales Agent with customary indemnification and contribution
rights.
On March 2, 2021 the Company sold 814,242 shares
of common stock at an average price of approximately $7.83 per share under the sales agreement with B. Riley Securities, Inc. The net
proceeds to the Company from the offering was approximately $6.1 million after placement agent fees and other estimated offering expenses.
The Company has an accumulated deficit at June 30,
2021 of approximately $114.4 million and a net loss of approximately $8.8 million and net cash used in operating activities of approximately
$8.2 million 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.
As of June 30, 2021, the Company had available cash and cash equivalents of approximately $20.5 million. The Company believes that
it has several important milestones that it will be achieving in the ensuing year. Management believes that as it achieves these milestones,
the Company’s ability to raise additional funds in the public markets would be enhanced.
Management believes that the Company’s existing
resources will be sufficient to fund the Company’s planned operations and expenditures through October 2022. However, the Company
cannot provide assurance that its plans will not change or that changed circumstances will not result in the depletion of its capital
resources more rapidly than it currently anticipates. The accompanying audited financial statements do not include any adjustments that
may result from the outcome of such unidentified uncertainties.
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Results of Operations
The Company is a biopharmaceutical company and
does not have any revenue for the years ended June 30, 2021, 2020 and 2019.
Comparison of the Year End June 30,
2021 to the Year Ended June 30, 2020
Revenues - The Company is a non-revenue
producing entity.
Operating Expenses - Research and
development expenses for the year ended June 30, 2021 increased $1,419,017 to $6,114,541 from $4,695,524 for the year ended June 30,
2020. This year-to-year increase is generally attributable to increases in lab supplies and chemicals, employee compensation expenses
and lab fees for pre IND studies. General and administrative expenses decreased $671,370 to $2,629,565 for the year ended June 30,
2021 from $3,300,935 for the year ended June 30, 2020. The decrease in general and administrative expenses is generally attributable
to decreases in legal and professional expenses and office salaries.
Interest Income - Interest income
was $9,348 and $17,079 for the years ended June 30, 2021 and 2020, respectively. Interest income decreased due to lower interest
rates for the majority of the year ended June 30, 2021.
Interest
Expense- The Company has incurred interest expense of $85,405 and $93,670 for the years ended June 30, 2021 and June 30,
2020 respectively. The decrease results from the payoff of a mortgage loan in December, 2020, offset by an increase in interest paid on
a short term loan payable.
Income Taxes - There is no provision
for income taxes due to ongoing operating losses. As of June 30, 2021, we had estimated cumulative tax benefits and development tax
credits and other deferred tax credits resulting in a deferred tax asset of $35,266,699. This amount has been offset by a full valuation
allowance.
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Net Loss - For the year ended June 30,
2021, the Company had a net loss of $8,822,189, or a basic and fully diluted loss per share of $0.81 compared to a net loss of $13,446,538,
or a basic and fully diluted loss per share of $2.39 for the year ended June 30, 2020. The decrease in the Company’s net
loss for the year ended June 30, 2021 from the year ended June 30, 2020 of $4,624,349 is generally attributable to the change
in fair value of derivatives and a loss on issuance of Series A shares for accounts payable-related party in the year ended June
30, 2020 offset by an increase in research and development costs in the year ended June 30, 2021.
Comparison of the Year End June 30,
2020 to the Year Ended June 30, 2019
Revenues - The Company is a
non-revenue producing entity.
Operating Expenses - Research
and development expenses for the year ended June 30, 2020 decreased $1,226,196 to $4,695,524 from $5,921,720 for the year ended June 30,
2019. This year-to-year decrease is generally attributable to a decrease in lab supplies and chemicals, and a decrease in employee compensation
expenses and by a decrease in lab fees for pre IND studies. General and administrative expenses increased $562,973 to $3,300,935 for the
year ended June 30, 2020 from $2,737,962 for the year ended June 30, 2019. The increase in general and administrative expenses
is generally attributable to an increase in legal and professional expenses offset by a decrease in salary and stock compensation paid
to retired executive officers and to employees other than research scientists and a decrease in consultants costs unrelated to research
and development.
Interest Income - Interest
income was $17,079 and $55,497 for the years ended June 30, 2020 and 2019, respectively. Interest income decreased due to lower cash
and cash equivalents for the majority of the year ended June 30, 2020 as well as lower interest rates.
Interest Expense- The Company
has incurred interest expense of $93,670 and $0 for the years ended June 30, 2020 and June 30, 2019, respectively. The increase
is as a result of interest paid on the mortgage note, amortization of the mortgage loan origination fee, and interest paid on a short
term loan payable.
Loss
on issuance of Series A preferred stock for accounts payable – related party – Loss of $142,669 for the
year ended June 30, 2020 represents the difference on the exchange of 100,000 shares of Series A preferred stock with a fair value of
$392,669 for $250,000 of previously deferred development fees owed to TheraCour’s.
Gain on Warrant Settlement- For
the year ended June 30, 2020, the gain on warrant settlement resulted from an Exchange Agreement with certain Investors pursuant
to a Settlement Agreement with the same investors. The Investors exchanged 347,222 old warrants for 647,224 shares of common stock and
347,222 new warrants. The aggregate fair value of the common stock and New Warrants issued as part of the Exchange Agreement was $7,788,968.
The Old Warrants were remeasured to a fair value of $8,403,462 on January 24, 2020 immediately prior to the exchange. As a result
of the Exchange Agreement, a gain on warrant settlement was recognized in the amount of $614,494 calculated as the difference between
the fair value of the Old Warrants immediately prior to the exchange and the aggregate fair value of the common stock and New Warrants
issued in the exchange.
Change in fair value of derivative -
Change in fair value of derivative for the year ended June 30, 2020 decreased $6,025,058 to ($5,845,313) from $179,745 for the year
ended June 30, 2019. For the year ended June 30, 2020, the change in fair value of derivatives resulted from an Exchange Agreement
with certain Investors pursuant to a Settlement Agreement with the same investors. For the year ended June 30, 2019, the change in
the fair value of derivative liabilities was calculated primarily on the change in fair value of 5.5 year warrants issued on February 27,
2019.
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Income Taxes - There is
no provision for income taxes due to ongoing operating losses. As of June 30, 2020, we had estimated cumulative tax benefits and
development tax credits and other deferred tax credits resulting in a deferred tax asset of $35,089,911. This amount has been offset by
a full valuation allowance.
Net Loss - For the year ended
June 30, 2020, the Company had a net loss of $13,446,538, or a basic and fully diluted loss per share of $2.39 compared to a net
loss of $8,424,440, or a basic and fully diluted loss per share of $2.35 for the year ended June 30, 2019. The increase in the Company’s
net loss for the year ended June 30, 2020 from the year ended June 30, 2019 of $5,022,098 is generally attributable to the change
in fair value of derivatives, and an increase in general and administrative expenses, offset by a decrease in research and development
costs.
Liquidity and Capital Reserves
The
Company had cash and cash equivalents of $20,516,677 and $13,708,594 as of June 30, 2021 and 2020, respectively. On the same dates,
current liabilities outstanding totaled $351,146 and $2,156,377, respectively. As of June 30, 2021 and June 30, 2020, total
current liabilities included short term loan payable of $95,306 and $62,843, respectively
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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 $114,385,313
and $105,563,124 at June 30, 2021 and 2020, respectively.
The Company anticipates
several important milestones that it will be achieving in the ensuing year. Management believes that as it achieves these milestones,
the Company’s ability to raise additional funds in the public markets would be enhanced.
Management believes that the Company’s existing
resources will be sufficient to fund the Company’s planned operations and expenditures through October, 2022. However, the Company
cannot provide assurance that its plans will not change or that changed circumstances will not result in the depletion of its capital
resources more rapidly than it currently anticipates. The accompanying audited financial statements do not include any adjustments that
may result from the outcome of such unidentified uncertainties.
As of June 30,
2021, we have a cash and cash equivalent balance of $20,516,677 that is expected to be sufficient to fund our currently budgeted
operations for more than one year from the filing of the Company’s Annual Report on Form 10K. Additionally, on July
31, 2020, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley
Securities, Inc. and Kingswood Capital Markets, a division of Benchmark Investments, Inc. (collectively, the “Sales
Agents”). Sales pursuant to the Sales Agreement will be made only upon instructions by the Company to the Sales Agents, and
the Company cannot provide any assurances that it will issue any Shares pursuant to the Sales Agreement. Actual sales will depend on
a variety of factors to be determined by the Company from time to time, including (among others) market conditions, the trading
price of the Company’s common stock, capital needs and determinations by the Company of the appropriate sources of funding for
the Company. The Company is not obligated to make any sales of common stock under the Sales Agreement and the Company cannot provide
any assurances that it will issue any shares pursuant to the Sales Agreement. On March 2, 2021 the Company sold 814,242 shares
of common stock at an average price of $7.83 under the Sales Agreement with B. Riley Securities, Inc. The net proceeds to the
Company from the offering was approximately $6.1 million after deducting underwriting discounts and commissions and other offering
expenses.
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.
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 4 summarizes the primary components
of our research and development expenses as allocated, during the periods presented in this Annual Report on Form 10-K.
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Table 4: R&D Cost Allocations
All Influenzas: FluCideTM - - 150,000
EKC-CideTM, other Eye Viral Infections - - -
Dengue - - -
Other (Ebola, and other projects) - - -
Unallocated stock compensation - - 150,000
Anticipated Budgets and Expenditures in the Near Future
The Company has ended the year on a reasonable financial footing by
controlling costs and expenditures. We project that our current available financing is sufficient for accomplishing the goal of filing
one IND or equivalent regulatory applications and executing initial human trials. We will need additional financing to execute on our
business plan and to complete human clinical trials of our drug candidates into drug approval. Our Coronavirus drug candidate has completed
IND-enabling studies, and is expected to rapidly move into human clinical studies in response to the COVID-19 pandemic. Our Shingles Skin
Cream, has completed IND-enabling studies, and we intend to file an IND for this drug once the COVID-19 situation abates. At present,
we are working on the scale up of manufacturing of these drug candidates in a manner that will be compliant with US FDA cGMP and corresponding
ICH guidelines. We intend to request a pre-IND meeting with the USFDA for the Coronavirus drug candidate at an appropriate time, as we
develop the dataset for this discussion. A pre-IND meeting will help us determine the level of detail needed in the cGLP Safety/Toxicology
study required for the IND application, and also to refine our human clinical trials design. We anticipate that these drug candidates
will move forward into IND or equivalent regulatory filings, and ensuing human clinical trials. As these drug candidates are advancing
into the clinic, we believe that our additional drug candidates, including two or more drug candidates in the HerpeCide program will also
move forward into IND-enabling studies. We intend to further re-engage our FluCide and HIVCide drug development programs once we have
established our platform technology with the Coronavirus and HerpeCide program drug candidates. We are thus poised for strong growth with
a number of drug candidates in a number of disease indications.
Financings
Management engaged in efforts to raise financing
in September 2019. On September 24, 2019, the Company effected a reverse stock split of its outstanding shares of common stock and shares
of preferred stock at a ratio of one for twenty (the “Reverse Stock Split”). The Reverse Stock split, which was approved by
the Company’s Board of Directors under authority granted under the laws of the State of Nevada, was consummated pursuant to a Certificate
of Amendment filed with the Secretary of State of Nevada on September 23, 2019.
On December 16, 2019, the Company entered into an Open End Mortgage
Note (the “Note”) with Dr. Anil Diwan, the Company’s founder, Chairman and President, to loan the Company up to $2,000,000
in two tranches of $1,000,000 (the “Loan”). The Note bore interest at a rate of 12% per annum and was secured by a mortgage
granted against the Company’s headquarters. Dr. Anil Diwan received 10,000 shares of the Company’s Series A preferred stock
as a loan origination fee. As of June 30, 2020, the Company had drawn down $1.1 million on this loan. On April 30, 2020, the Company and
Dr. Diwan have mutually agreed to extend the maturity date of the note, at the Company’s option, to May 15, 2021, with the rest
of the terms remaining the same. On December 16, 2020 the Company repaid the mortgage loan.
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On December 17, 2019, the Company entered into
a Deferred Expense Exchange Agreement with TheraCour, whereby the Company and TheraCour agreed to exchange 100,000 shares of Series A
preferred stock with a fair value of $392,669 for $250,000 previously deferred development fees owed to TheraCour. The Company recognized
a loss on the exchange of $142,669. Dr. Diwan is principal shareholder of TheraCour.
On January 24, 2020, the Company announced
in a press release that it had completed an underwritten public offering (the “Offering”) with gross proceeds of $8,625,000
before deducting underwriting discounts and other estimated offering expenses. The Offering included 2,500,000 shares of the Company’s
common stock, and 375,000 additional shares from the exercise of the underwriter’s option to purchase to cover over-allotments at
the public offering price of $3.00 per share. No warrants were issued in this Offering. The net proceeds to the Company After deducting
offering costs was $7,457,575.
On May 26, 2020, the Company announced in
a press release that it had raised $10,220,000 in gross proceeds from the sale of 1,400,000, shares of common stock, at a price of $7.30
per share, in a previously announced registered direct offering (the “May Offering”). No warrants were issued in this May
Offering. The net proceeds to the Company were approximately $9,219,400 after deducting placement agent fees and other costs. The
May Offering closed on May 22, 2020.
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On July 8, 2020, , the Company entered into an
underwriting offering with Kingswood Capital Markets, a Division of Benchmark Investments, Inc. (“Kingswood”). The offering
was consummated on July 10, 2020, whereby the Company sold 1,369,863 shares of Common Stock and a fully exercised Underwriters’
over-allotment option of 205,479 additional shares the public offering price of $7.30 per share. No warrants were issued in this Offering.
The net proceeds to the Company from the offering was approximately $10.4 million after deducting underwriting discounts and commissions
and other estimated offering expenses payable by the Company.
Additionally, on July
31, 2020, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities,
Inc. and Kingswood Capital Markets, a division of Benchmark Investments, Inc. (each a “Sales Agent” and collectively, the
“Sales Agents”), pursuant to which the Company may offer and sell, from time to time, through or to the Sales Agents, shares
of Common Stock (the “Placement Shares”), having an aggregate offering price of up to $50 million (the “ATM Offering”).
Sales pursuant to the Sales Agreement will be made only upon instructions by the Company to the Sales Agents, and the Company cannot provide
any assurances that it will issue any Shares pursuant to the Sales Agreement. Actual sales will depend on a variety of factors to be determined
by the Company from time to time, including (among others) market conditions, the trading price of the Company’s common stock, capital
needs and determinations by the Company of the appropriate sources of funding for the Company. The Company is not obligated to make any
sales of common stock under the Sales Agreement and the Company cannot provide any assurances that it will issue any shares pursuant to
the Sales Agreement. On March 2, 2021 the Company sold 814,242 shares of common stock at an average price of $7.83 under the Sales
Agreement with B. Riley Securities, Inc. The net proceeds to the Company from the offering was approximately $6.1 million after deducting
underwriting discounts and commissions and other offering expenses.
The Company thus believes that it is in a strong
financial position now and can undertake the COVID-19 clinical program, and also, when opportune, reengage the NV-HHV-101 clinical program.
The Company also believes that additional non-dilutive financing will be available under the COVID-19 program upon advancing it further
toward or into human clinical trials. The Company also believes that due to the pandemic, it will be possible to rapidly take our anti-coronavirus
drug into human clinical trials under the COVID-19 regulatory pathways of the US FDA or other regulatory authorities.
Requirement for Additional Capital
As of June 30, 2021, we had a cash and cash
equivalent balance of $20,516,677 that is expected to be sufficient to fund our currently budgeted operations for more than one year from
the filing of the Company’s Form 10-K.
The Company believes that our cash and cash equivalent
balance and the proceeds from the ATM offerings will provide sufficient funds for us to continue our operations beyond October, 2022 and
to be able to advance at least one of its drug candidates into human clinical trial stage with the available cash. The Company estimates
that it will need additional funding to continue further development of its drug candidates through later stages of human clinical trials
if it does not form a collaborative licensing or partnership agreement with a party that would provide such funding such as Big
Pharma.
Based on our current rate of expenditures and
anticipated changes, we have estimated a total cash expenditure budget of approximately $15.2 million from October 2021 through October
2022, of which approximately $11.2 million is expected to go towards research and development for our drug candidates, including IND-enabling
studies and anticipated human critical trial of our antiviral treatment for COVID, and approximately $4.0 million is budgeted for general
and administrative expenses.
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These anticipated expenses for the subsequent one year period commencing
about October 2021 can be summarized as follows:
We estimate that beyond the current budgetary
one-year period ending October 15, 2022, to the period ending October 15, 2023 human clinical development of the Skin Cream for Topical
Treatment of Shingles, for further clinical studies towards full-fledged approval of our Coronavirus drug candidate as may be necessary,
and for developing additional drug indications based on the Shingles skin cream candidate, NV-HHV-101, in the HerpeCide program, we
may need approximately an additional $13 million, or approximately $13 million more than our current cash reserves. The additional funds
will be needed to pay additional, subcontract costs related to the expansion and further development of our drug pipeline, for human clinical
trials, and for additional capital and operational expenditures
These anticipated additional expenses for the
two-year period commencing October 16, 2022 can be summarized as follows:
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5. Capital costs for laboratory and pilot manufacturing equipment of $2,000,000.
We believe that as we become a clinical stage
company, and as our programs mature towards FDA approval, the Company’s market capitalization should improve substantially, based
on market capitalizations of comparable public companies in clinical stages. If so, we believe that we will be able to raise the additional
necessary funds through public financings as needed. We believe that our coronavirus program is maturing rapidly towards human clinical
trials, and if we are successful in achieving an emergency use approval for a coronavirus drug candidate, we may be able to generate substantial
revenues during the current pandemic using our existing cGMP-capable manufacturing capacity itself.
We believe we have sufficient funding to
take our Coronavirus drug candidate into initial human clinical trials. We will need to raise additional funds to take NV-HHV-101
and additional Topical HerpeCide drug candidate indications into an IND application stage. There is no assurance that the Company
will be successful in obtaining sufficient financing on terms acceptable to the Company to fund these programs. Management believes
that as a result of the management plan, the Company’s existing resources and access to the capital markets will permit
the Company to fund planned operations and expenditures. However, the Company cannot provide assurance that its plans will not
change or that changed circumstances will not result in the depletion of its capital resources more rapidly than it currently
anticipates.
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 the 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 and very likely, our coronavirus
drug candidate in human clinical trials. 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 and further human clinical studies, expanding into Phase 2b, and Phase
3 human clinical trials of our drug candidates.
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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.
Our animal efficacy studies as well as safety/toxicology
studies are performed by third parties. We opt into drug developments against specific disease indications for which we have appropriate
partners that can perform the necessary cell culture and animal efficacy studies.
The Company reports summaries of its studies as
the data becomes available to the Company, after analyzing and verifying same, in its press releases. 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.
We cannot accurately project the timeline of when
we would be able to take a drug candidate into clinical studies, nor can we predict when we may be able to achieve our first drug approval,
if any. As such we do not provide any guidance on expected timelines. The Company has no experience in having taken a single drug through
the US FDA or any international drug approval process as of now. As such, we may not be able to estimate the time or cost of these studies
accurately. However, we try to do our best by using expert consultants and preparing reasonable estimates based on quotations from various
contract research organizations.
Our timelines depend upon several assumptions,
many of which are outside the control of the Company, and thus are subject to delays.
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.
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.
Off Balance Sheet Arrangements
We have not entered into any off-balance sheet
arrangements during the year ended June 30, 2021.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Accounting for Stock Based Compensation
– The Company follows the provisions of ASC 718 – Stock Compensation, which requires the measurement of compensation
expense for all shared-based payment awards made to employees, non-employee directors, and non-employees including employee stock options.
Shared-based compensation expense is based on the grant date fair value estimated in accordance with the provisions of ASC 718 and is
generally recognized as an expense over the requisite service period, net of forfeitures.
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RECENT ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Pronouncements
The Company considers the applicability and Impact of all Accounting
Standard Updates (“ASU’s”). There were no recent ASU’s that are expected to have a material impact on the Company’s
balance sheets or statements of operations.
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.
Item
9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission (the “SEC”). Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed in the reports that we file under the Exchange Act
is accumulated and communicated to our management including our chief executive officer and our chief financial officer, as appropriate,
to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives. Due to the inherent limitation of controls systems, not all misstatements may be detected. These inherent
limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error
or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or
by management override of the control. Controls and procedures can only provide reasonable, not absolute, assurance that the above objectives
have been met.
Page 105 of 121
As of June 30, 2021, an evaluation was carried
out under the supervision and with the participation of our management, of the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) and Rule 15d-15(f) under the Securities Exchange Act of 1934). Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are
not effective as of June 30, 2021 due to a material weakness in our internal control over financial reporting described below.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act. Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness, as of June 30, 2021, of our internal control over financial reporting based
on the framework in 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under this framework, our management concluded that our internal control over financial reporting
was not effective as of June 30, 2021 due to the material weakness described below:
Management did not maintain effective
procedures pertaining to the review of the 10-K. The material weakness resulted from the lack of timely and effective review of the
Company’s period-end closing process and adequate personnel and resources. Specifically, the Company has not established
procedures for thorough review by management, on a timely basis, of Form 10-K and other filings. Management’s
responsibility is to oversee that the Company is capable of developing accurate and timely financial information. The Company must
continue to reinforce additional procedures ensuring that Form 10-K as well as other required filings are done on a timely and
accurate basis.
Changes in Internal Control over Financial
Reporting
Other than what was described below, there were no material changes
in our system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during
the quarter ended June 30, 2021 that has materially affected, or is likely to materially affect, our internal control over financial reporting.
However, as noted below, we have begun to implement changes in our internal control over financial reporting to address the material weakness
described above.
Remediation Plan
The Company has established a financial reporting
controls committee comprised of members of senior management and a member of the Audit Committee of the Board of Directors. The committee
will provide oversight to the Company’s efforts for ensuring appropriate internal control over financial reporting including, but
not limited to, remediation of the aforesaid material weakness and identifying and testing for potential internal control weakness in
the financial reporting process to assure reliability and accuracy. Management believes the foregoing efforts will effectively remediate
the material weakness identified above. As we continue to evaluate and work to improve our internal control over financial reporting,
management may execute additional measures to address potential control deficiencies or modify the remediation plan described above and
will continue to review and make necessary changes to the overall design of our internal controls.
Page 106 of 121
ITEM
9B. Other Information
None.
Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable
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. Each executive officer holds the office until he/she resigns, is removed by the Board or his/her successor is appointed
by the Board upon appropriate due diligence. Directors are elected biannually by our stockholders at the annual meeting. Each director
holds his/her office until the successor is elected and qualified or his/her earlier resignation or removal.
The following persons are the directors and executive
officers of our company:
Name Age Title
Anil Diwan, PhD. 63 President; Chairman of the Board and CEO
Stanley Glick, CPA 85 Director, Independent
Makarand “Mak” Jawadekar 70 Director, Independent
Theodore Edward (“Todd”) Rokita 51 Director, Independent
Brian Zucker 59 Director, Independent
Meeta Vyas 63 Chief Financial Officer
The Company’s directors are elected biannually
and serve until their term expires, and may be re-elected for an additional term at the annual meeting of shareholders. The executive
officers that become members of the Board of Directors are elected via biennial election and serve as director through the term, and may
be re-elected for an additional term at the annual meeting of shareholders.
Anil Diwan, PhD, age 63, 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. Dr. Diwan has won over 12 NIH SBIR grants.
Dr. Diwan holds several issued patents, and three PCT international patent applications in various stages of prosecution in a number
of countries, and also has several additional patentable discoveries. 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.
Stanley Glick, CPA, age 85, was
appointed as an independent Director and as chair of the Audit Committee of the Company on June 22, 2013. 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”. Mr. Glick’s appointment as an independent director and audit
committee chairman, significantly improves the Company’s financial oversight and management.
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Makarand “Mak” Jawadekar, 70,
was appointed as an Independent Member of the Board of Directors, and will serve as a member of the Company’s Audit, Compensation
and Nominating Committees. Dr. Jawadekar has over 35 years of experience in the pharma industry spanning both business and research
activities. Dr. Jawadekar has extensive experience in joint ventures, alliance management, contracting, outsourcing, benchmarking,
performance metrics, pharmaceutical research and development, drug delivery technologies, formulations, clinical supply manufacturing
and packaging, clinical trial materials, pharmaceutics, and pharmaceutical sciences. He also has deep knowledge and global experience
working across the United States, Europe, India, and other parts of Asia, including Japan and China. He has helped create several
pharma R&D partnerships, joint ventures, and collaborations during his career. Dr. Jawadekar serves as a strategic advisor to
pharmaceutical and biotechnology companies through his independent consultancy, founded in 2010, after retiring from Pfizer, Inc.,
as Director, Portfolio Management & Analytics, and as Vice President, Asia Colleague Resource Group, in Pfizer Global R&D
division. From 1982 to 2010, Dr. Jawadekar held roles of increasing responsibility in technical, management, and business development
positions at Pfizer, in the areas of Drug Delivery Technology Assessment, Strategic External Alliance Management, Strategic CMC, Pharma
R&D, Clinical Manufacturing, Manufacturing Technology Transfer and Scale-up, beginning as a research scientist in formulations development.
Dr. Jawadekar serves on the boards of two public companies, namely: Preveceutical Medical Inc. (CSE: PREV), and Cardax, Inc.
(OTC: CDXI), as an independent board member. He also serves on the Strategic and Scientific Advisory Boards of several companies, including
Actinium Pharma (NYSE-Amer.: ATNM), Saama Technologies, Inc., and Diant Pharma, Inc., as well as Tonino Lamborghini SpA, Italy.
He also serves as a member of the Board of Directors at Abilities Inc., a New York based, non-profit organization. Mak holds a Ph.D. in
Pharmaceutics from the University of Minnesota, and was honored with an honorary D.Sc. degree by DYP Mumbai University, recommended by
the President of India. The Company believes Dr. Jawadekar’s long history as a pharmaceutical and biotech professional, particularly
in alliance development and management, in business strategy, and in pharmaceutical sciences and CMC in drug delivery, render him well
qualified to serve as an independent member of the Board of Directors.
Theodore Edward (“Todd”)
Rokita, 51, Director. Mr. Rokita was appointed as an Independent Member of the Board of Directors, and will serve
as a member of the Company’s Audit, Compensation and Nominating Committees. Mr. Rokita currently serves as co-owner and
General Counsel and Vice President of External Affairs, Apex Benefits Group, Inc. where he serves as a member of the executive
team and the corporate board. He is responsible for legal strategies, including litigation, acquisitions and other matters,
primarily involving ERISA and employment laws, and is responsible for the regulatory compliance of Apex’s clients. In his
role, he serves as the public face of the company and is responsible for external messaging, events, and other outreach functions.
Mr. Rokita was elected to the United States Congress as a Representative from the State of Indiana, serving four terms from
2011 to 2019. As a member of the US Congress, he served as the Chairman, House Subcommittee on Early Childhood, Elementary, and
Secondary Education, as the Vice Chairman, House Committee on the Budget, as a Member, House Committee on Education and the
Workforce (Health, Employment, Labor and Pensions subcommittee), as a Member, House Committee on Transportation and Infrastructure,
(aviation, railroad, and pipeline subcommittees), as a Member, Committee on House Administration (2011-2014), as a Member, Steering
Committee (2011-2012) (elected by peers to make their committee assignments), and also as a Director, Republican Study Committee
(2014- 2019) (group affecting policy direction and tactics). Prior thereto Mr. Rokita served as the Secretary of
State, Indiana, from 2003 to 2011) and as Chief Operating Officer and General Counsel, Office of Indiana Secretary of State
from 2000-2002. Mr. Rokita serves or has served as a Member of the Board of Directors on a number of commercial and charitable
institutions, among them: Aircraft Owners and Pilots Association Foundation, (2014-Present); Achieve
International, Indianapolis, IN (helping troubled teens), (2012-2018); Saint Vincent Hospital Foundation, (2011-2013);
Indiana Council for Economic Education, (2004-2010). Mr. Rokita also serves or has served as an Advisory Board Member for
several institutions, among them: Merchandise Warehouse, Inc. Indianapolis, IN, (2019-Present); WishBone
Medical, Inc., Warsaw, IN, (2019-Present); and Acel 360, Inc., Reston, VA Advisory Board member (2019-Present).