ITEM 1. DESCRIPTION OF BUSINESS

General

Nova Biogenetics, Inc. is a biotech holding company headquartered in Atlanta, Georgia with two wholly owned subsidiaries: Nova Specialty Chemical, Inc. and Nova Biopharmaceuticals, Inc., both incorporated in Delaware on January 30, 2004 Both subsidiaries are engaged in the discovery, development, and commercialization of new therapeutic( Human ) and industrial agents that treat infectious diseases and microbial contamination. Nova Biogenetics' pipeline is based on proprietary patented technology used as a broad base for applications with existing antimicrobial compounds. Attaching the proprietary patented technology to antibiotic compounds is intended to extend the antimicrobial spectrum of antibiotics.

NOVA BIOPHARMACEUTICALS, INC.

Nova Biopharmaceuticals, Inc.'s ("Nova Biopharmaceuticals"), (incorporated in Delaware on January 30, 2004) mission is to provide solutions to the major therapeutic dilemma of antimicrobial (i.e., bacteria, fungi or viruses) resistance to antibiotics that are currently available in the worldwide marketplace.

Nova Biopharmaceuticals is using its proprietary technology for the development of a suite of new antibiotics and antibiotic derivatives products. Nova Biopharmaceuticals' antibiotic product suite is an "Antibiotic Resistance Technology," otherwise referred to as "ART".

Nova Biopharmaceuticals products have demonstrated synergistic potential when conjugated to existing patented antimicrobials. These new chemical compounds may be used against targeted organisms creating a unique brand of antibiotic product formulations.

PRODUCT DIFFERENTIATION/COMPETITIVE ADVANTAGE

Nova Biopharmaceuticals' broad line of specialized antibiotic products acts by disrupting the cell wall of bacteria and / or fungi. This action is intended to kill the targeted organisms. Presently, many generic antibiotic formulations act by diffusing into the targeted organism/cells and providing an environment for slowing cellular activity providing a state of stasis (cells are not actually killed). Nova's compounds have significant potential to actually kill the targeted organism, significantly enhancing existing generic antibiotic medications.

In addition, Nova Biopharmaceuticals possess a competitive advantage of providing a product platform that may create longevity in the drugs that it produces by delivering antibiotics that are less susceptible to adaptation or mutation. Finally, the "ART" platform is based upon existing technology that Nova, has already received patents and EPA approvals for industrial applications. Much has been learned about the "ART" platform adding to the volume of

microbiologic information available, thus shortening the timeline for development and minimizing the research associated with creating a viable core platform to work from.

NOVA PHARMACEUTICAL DEVELOPMENT STRATEGY

Nova Biopharmaceuticals solution to emerging antibiotic resistance in microorganisms will use the application of its proprietary technology to develop a suite of new antibiotics and / or antibiotic derivatives. Nova Biopharmaceuticals' antibiotic product suite will fall under "Antibiotic Resistance Technology," otherwise referred to as "ART". The Nova Biopharmaceuticals" research and development strategy is targeted at providing short-term (i.e., 24 months), intermediate-term (i.e., 36-48 months) and long-term (i.e., >60 months) solutions. Nova Biopharmaceuticals' proprietary technology has demonstrated that it is not susceptible to microbial adaptation (i.e., antibiotic resistance) in laboratory tests designed specifically for determining antibiotic resistance. This outcome is directly linked to the mechanism with which this technology affects microbial growth. The mechanism is best described as "electrocution" of actively growing microorganisms. Based on this knowledge and the availability of a vast number of proven "generic" antimicrobials, Nova will identify a series of "novel" target molecules with antiviral, antibacterial or antifungal functionality. In essence, the target molecules will function in a manner similar to targeted chemotherapy. The generic drug component of the molecule will be used to target the microorganism and act as a delivery device for the proprietary Nova technology, which will "kill" the microorganism.

NOVA BIOPHARMACEUTICALS RESEARCH & DEVELOPMENT PIPELINE

Nova Biopharmaceuticals views bacterial resistance as a major hurdle in effective therapeutic interventions for a significant number of infectious diseases. This is ever apparent in the clinical practice, where physicians and other healthcare providers are constantly challenged by the number of new antibiotics being offered by pharmaceutical manufacturers, while at the same time, traditional antibiotic therapies have been limited. In both cases, bacterial resistance and the broad spectrum of use are identified as the reasons for the introduction of the new and improved products.

Currently, Nova Biopharmaceuticals is taking steps to file patents to secure the intellectual property of the compounds and effective molecules that Nova will utilize in its pipeline. In that regard, it is currently conducting (MIC) microbial inhibition studies to prepare for the filing of patents on two new antiobiotic compound. These studies and protocols will be used to file our intended patent surrounding the "ART" program.

THE MARKET FOR ANTIBACTERIAL PRODUCTS

Worldwide sales of prescription antibiotics exceed $23 billion (Biotechnology Industry Association).

Antibiotics represent the second largest therapeutic category in terms of pharmaceutical sales. While there are more than 100 different antibiotics from more than 30 different classes approved

for use in humans, a select few antibiotics and classes garner the majority of use. Most of the leading products are broad spectrum, with only a few reserved for targeted or restricted use. While the overall market continues to grow at a rate of 6.5% annually, as antibiotics are increasingly used in combination to combat resistant bacteria, a few new classes of antibiotics have been introduced during the past twenty years.

EXPLANATION OF ANTIBIOTIC RESISTANCE (SOURCE: UNITED STATES FOOD AND DRUG ADMINISTRATION)

Disease-causing microbes that have become resistant to drug therapy are an increasing public health problem. Tuberculosis, gonorrhea, malaria, and childhood ear infections are just a few of the diseases that have become hard to treat with antibiotic drugs. Part of the problem is that bacteria and other microorganisms that cause infections are remarkably resilient and can develop ways to survive drugs meant to kill or weaken them. This antibiotic resistance, also known as antimicrobial resistance or drug resistance, is due largely to the increasing use of antibiotics.

OTHER FACTS

Though food-producing animals are given antibiotic drugs for important therapeutic, disease prevention or production reasons, these drugs have the downside of potentially causing microbes to become resistant to drugs used to treat human illness, ultimately making some human sicknesses harder to treat.

About 70 percent of bacteria that cause infections in hospitals are resistant to at least one of the drugs most commonly used to treat infections.

Some organisms are resistant to all approved antibiotics and must be treated with experimental and potentially toxic drugs. Some research has shown that antibiotics are given to patients more often than guidelines set by federal and other healthcare organizations recommend. For example, patients sometimes ask their doctors for antibiotics for a cold, cough, or the flu, all of which are viral and don't respond to antibiotics. Also, patients who are prescribed antibiotics but don't take the full dosing regimen can contribute to resistance.

Unless antibiotic resistance problems are detected as they emerge, and actions are taken to contain them, the world could be faced with previously treatable diseases that have again become untreatable, as in the days before antibiotics were developed.

Nova Biopharmaceuticals solution to emerging antibiotic resistance in microorganisms will use the application of its proprietary technology to develop a suite of new antibiotics and / or antibiotic derivatives. Nova Biopharmaceuticals antibiotic product suite will fall under "Antibiotic Resistance Technology," otherwise referred to as "ART". The Nova Biopharmaceuticals' research and development strategy is targeted at providing short-term (i.e., 24 months), intermediate-term (i.e., 36-48 months) and long-term (i.e., >60 months) solutions.

Nova Biopharmaceuticals' proprietary technology has so far demonstrated that it is not susceptible to microbial adaptation (i.e., antibiotic resistance) in laboratory tests designed

specifically for determining antibiotic resistance. This outcome is directly linked to the mechanism with which this technology affects microbial growth. The mechanism is best described as "electrocution" of actively growing microorganisms. Based on this knowledge and the availability of a vast number of proven "generic" antimicrobials, Nova Biopharmaceuticals intends to identify a series of "novel" target molecules with antiviral, antibacterial or antifungal functionality. In essence, the target molecules will function in a manner similar to targeted chemotherapy. The generic drug component of the molecule will be used to target the microorganism and act as a delivery device for the proprietary Nova technology, which will "kill" the microorganism.

Investment funding will be needed to complete the following research activities:
Computational analysis will be utilized to determine the most economic synthesis strategy for the target molecules and to determine potential toxicity of the target molecules. These steps are intended to significantly reduce drug development costs by eliminating target compounds with high toxicity and complex synthesis requirements. Target molecules will be synthesized and subjected to laboratory testing to validate toxicity and antimicrobial efficacy (pre-clinical investigations). Target molecules generated in this fashion should be "novel". As such, Nova will seek to obtain patents on the novel target molecules that demonstrate appropriate toxicity and antimicrobial efficacy. Phase 1 through Phase 3 Clinical Trials will be conducted. Nova may seek joint venture partnerships to develop drug through clinical trials.

NOVA BIOPHARMACEUTICALS ANTIBIOTIC RESISTANCE TECHNOLOGY (ART)

The widespread and uncontrolled use of antibiotics, both for human consumption, agriculture and animal feed, has encouraged the development of drug resistance in a variety of pathogenic microorganisms. These microorganisms employ resistance mechanisms, which include the modification of the antibiotic structure, mutagenesis of key amino acids in the macromolecular targets of specific chemotherapeutics, or drug efflux from the cell, among others. These three main mechanisms have been identified in resistance profiles for systems involved in protein biosynthesis, nucleic acid replication, and bacterial cell wall generation.

Most antibiotics presently in human use are natural products manufactured by different species of bacteria or fungi to be employed in their own survival -- for example, to kill other microbes in times of overpopulation. In a natural environment, such as the soil, bacteria exchange genetic information (such as resistance genes) with great facility and lack of species specificity, thus allowing molecular determinants of resistance to be passed on to other microbes with great ease. Such resistance-development methodologies fall into three main categories: (i) inactivation of the antibiotic by modification of its active chemical moiety; (ii) specific modification of the macromolecular target, i.e., by mutagenesis of key residues, and (iii) promotion of antibiotic efflux from the cell. Today, the emergence of bacterial strains, which display resistance to a variety of drugs (multiple drug resistant; MDR), is the major cause of failure of treatment of infections worldwide. Methicillin-resistant Staphylococcus aureus (MRSA) strains already require vancomycin as the last resort for treatment, and Streptococcus pneumoniae strains, which no longer respond to vancomycin, have already been identified. Multi-drug resistant Mycobaterium tuberculosis is another example of an emerging infectious disease with world-wide significance.

Nova Biopharmaceuticals' intended solution to emerging antibiotic resistance in microorganisms will use the application of its proprietary technology to develop a suite of new antibiotics and / or

antibiotic derivatives. Nova Biogenetics' antibiotic product suite will fall under "Antibiotic Resistance Technology," otherwise referred to as "ART". The Nova Biopharmaceuticals' research and development strategy is targeted at providing short-term (i.e., 24 months), intermediate-term (i.e., 36-48 months) and long-term (i.e., >60 months) solutions. The following is a summary of potential drug targets and the rationale for choosing them.

Target Research Drugs

A. Topical Treatments

Topical drug candidates represent a good option for short-term product development. Topical drug candidates fall into three major categories:

1. Antiviral (Acyclovir)

Antiviral ZOVIRAX is the brand name for acyclovir, a synthetic nucleoside analogue active against herpes viruses. ZOVIRAX Ointment 5% is a formulation for topical administration. Each gram of ZOVIRAX Ointment 5% contains 50 mg of acyclovir in a polyethylene glycol (PEG) base. Acyclovir is a synthetic purine nucleoside analogue with in vitro and in vivo inhibitory activity against herpes simplex virus types 1 (HSV-1), 2 (HSV-2), and varicella-zoster virus (VZV). The inhibitory activity of acyclovir is highly selective due to its affinity for the enzyme thymidine kinase (TK) encoded by HSV and VZV. This viral enzyme converts acyclovir into acyclovir monophosphate, a nucleotide analogue. The monophosphate is further converted into diphosphate by cellular guanylate kinase and into triphosphate by a number of cellularenzymes. In vitro, acyclovir triphosphate stops replication of herpes viral DNA. This is accomplished in 3 ways: 1) competitive inhibition of viral DNA polymerase, 2) incorporation into and termination of the growing viral DNA chain, and 3) inactivation of the viral DNA polymerase. The greater antiviral activity of acyclovir against HSV compared to VZV is due to its more efficient phosphorylation by the viral TK.

2. Antifungal (clotrimazole, econazole, miconazole, nystatin, tolnaftate). Topical drugs are the most attractive because they currently require the least amount of Food and Drug Administration (FDA) scrutiny.

Antifungal topical medications do not fall into any single class of drugs. Instead each has a different type of antifungal mechanism. The different drugs in each category are used to treat different fungi. Topical drugs are divided into over-the-counter (OTC) and prescription medications. This is also a good target group due to antibacterial activity of Nova Biopharmaceuticals ART. Secondary bacterial infections may also be problematic in the treatment of primary fungal dermatomycoses. Additionally, we can narrow the list of candidates by choosing drugs that interact with the fungal cell wall. The ART works in a similar manner, which should increase the probability of synergistic drug actions.

TOPICAL OTC ANTIFUNGAL MEDICATIONS

The following list of antifungal agents represent potential target molecules for conjugation to Nova's proprietary technology. These target molecules will be evaluated using high throughput computational molecular modeling to identify high consequence molecules.
Clioquinol (Vioform(R)). Clioquinol is used to treat inflammatory conditions of the skin, such as eczema (dry skin) and athlete's foot. This medication may stain fabric, skin, or hair.

Clotrimazole (Lotrimin(R) AF, Mycelex(R) OTC, prescription-strength Desenex(R)). Clotrimazole is used to treat vaginal and oral candidiasis, athlete's foot, jock itch, and ringworm of the face, arms and shoulders (not ringworm of the scalp). It is available as either a solution or cream, lozenge, topical solution and vaginal suppository.

Miconazole (Micatin(R)). Miconazole is available as an ointment, cream, powder, vaginal suppository, spray, liquid, or solution. It is used to treat athlete's foot; jock itch; and ringworm of the face, arms and shoulders. Miconazole should provide symptomatic relief within 2-3 days. However, when treating athlete's foot, treatment is continued for at least 2 to 4 weeks to ensure a complete cure.

Tolnaftate (Aftate(R), Tinactin(R)). Tolnaftate is available as an aerosol powder or solution, cream, powder, gel, or topical solution. It is used to treat athlete's foot and other superficial fungal infections of the skin.

PRESCRIPTION TOPICAL ANTIFUNGAL MEDICATIONS

Ciclopirox (Loprox(R)). Ciclopriox is available as a cream or lotion. It is used to treat a variety of fungal infections including athlete's foot, jock itch, and cutaneous candidiasis. Ciclopriox is also available as a nail lacquer for treating fungal infections of the nails and nail beds. It may take 4-6 months to see improvement in the nails.

Ketoconazole (Nizoral(R)). Ketoconazole is available as a prescription tablet, cream or shampoo. A 1% shampoo is also available over-the-counter. The cream is used for the treatment of ringworm, jock itch, and athlete's foot. The shampoo is used to reduce scaling due to dandruff. Treatment for ringworm, jock itch and athlete's foot is usually 2-6 weeks. Treatment for dandruff is 4 weeks, and then on an as-needed basis.

Miconazole (Mycostatin(R), Nystop(R)). Miconazole is available as an ointment, cream, powder, spray, liquid, or solution. It is used to treat athlete's foot; jock itch; and ringworm of the face, arms and shoulders.

Naftifine (Naftin(R)). Naftifine is available as a cream or as a gel. It is used to treat athlete's foot, jock itch, and generalized fungal skin infections. Complete the full course of therapy to prevent recurrent infections. Naftfine is available by prescription only.

Nystatin (Nystop(R), Mycostatin(R)). Nystatin is available as a cream, ointment or powder. It is used to treat a variety of fungal infections. In particular, it is used to treat candidal infections,

such as thrush, esophageal candidiasis, and cutaneous candidiasis. It is virtually nontoxic and nonsensatizing. Symptomatic relief should occur within 1-3 days. However, a user should finish the full course of therapy to ensure that the infection is completely cleared up. Nystatin is available by prescription only.

Oxiconazole (Oxistat(R)). Oxiconazole is available as a cream or a lotion. Both are used to treat athlete's foot, jock itch, and ringworm in adults and children. The cream can also be used to treat tinea versicolor, which is a chronic, generalized fungal skin infection. Wash hands after applying the medication to help prevent accidental application to other areas. Oxiconazole is available by prescription only.

Selenium Sulfide (Selsun(R), Exsel(R)). Selenium sulfide is available as a lotion or shampoo. It is used to treat dandruff, seborrheic dermatitis, ringworm of the scalp, and tinea versicolor (a generalized chronic fungal skin infection). This medication is available by prescription only.

Terbinafine (Lamisil(R)). Terbinafine is available as a cream or pump-spray solution. It is used to treat a variety of ringworm infections, as well as athlete's foot, jock itch, and candidal skin infections. Terbinfine is available by prescription only.

OTC VAGINAL ANTIFUNGAL MEDICATIONS

Miconazole (Monistat(R) 3, Monistat-Derm(R)). Miconazole is available as an OTC suppository or cream. It is used to treat vaginal fungal infections, including vaginal candidiasis. Terconazole (Terazol(R)). Terconazole is an antifungal cream or suppository intended for intravaginal use only. It is used to treat vaginal fungal infections, including vaginal candidasis. It is generally prescribed as a 3-day or 7-day course of treatment.

3. Antibacterial (bacitracin, clindamycin, erythromycin, metranidazole, mupirsoin, neomycin, and polymyxin B)

The ideal antibacterial or antimicrobial compound displays a selective toxicity. This means that it is harmful to the microbe (the bacteria, fungi or virus) without being harmful to the host (a user). In reality, many antimicrobials have a relative toxicity. Antimicrobial is a broader category that includes antifungal, antiviral, antiprotozoal or antibacterial compounds. Antibacterials specifically act against bacterial cells. The actual mechanism of antibacterial compounds is not always known. In general terms, most of these drugs act by altering or inhibiting one of the following cellular structures/processes: a) cell wall synthesis, b) permeability of the cell membrane, c) protein synthesis, and d) nucleic acid synthesis. Our focus is not restricted. This phase of testing will help identify, which antibacterial mechanisms are the most synergistic with ART. The primary market is OTC topical antibacterial treatments.

Target drug candidates may include: bacitracin, clindamycin, erythromycin, metranidazole, mupirosin, neomycin and polymyxin B.

B. Oral Treatments

Oral treatments will require significant research and development. Consequently, oral treatments are better candidates for intermediate to long-term development. The FDA requirements for oral treatments are also much more stringent. These products will require considerable toxicity and bioavailablity testing. There are three principal targets for antibacterial drugs1) cell wall synthesis, 2) DNA / RNA sysnthesis, and 3) protein synthesis.

The ART works is primarily directed toward cell wall synthesis. Consequently, the initial research and development will focus on drugs that interact with cell walls, which should increase the probability of synergistic drug actions. The following is a brief description of interaction between select antibiotics and the cell wall. The bacterial cytoplasm is separated from the external environment by a cytoplasmic membrane; in addition, bacteria possess a crucial structure surrounding the entire cell: the peptidoglycan. This three-dimensional cross-linked mesh protects the cell from modifications in osmotic pressure and plays key roles in cellular shape determination and daughter cell formation during the division process. Disruption of the peptidoglycan structure engenders osmotic fragility and possibly cell lysis, underlining the essential nature of its function. Therefore, it is not surprising that a vast number of naturally occurring antibiotics are in fact targeted towards enzymes or substrates involved in peptidoglycan biosynthesis and cell wall stabilization. The widespread use of such molecules and their novel analogs, including vast application as additives in animal feed, has promoted the development of resistance patterns with dire effects observed for vancomycin and Beta-lactams.

Target drug candidates may include: Penicillins (G, V, Amoxicillin, Ampicillin, Nafcillin, Ticarcillin), Cephalosporins (Cephalexin, Cefazolin, Cefaclor, Loracarbef, Ceftriaxone, Cefotaxime), Vancomycin, and Isoniazid.

INDUSTRY - ANTIBIOTICS

According to the Center for Disease Control (CDC), more than two million patients in the U.S. each year contract an infection as a result of exposure while receiving healthcare in a hospital. S. AUREUS is among the most common causes of these hospital-acquired infections and is reportedly associated with a death rate of 10% to 25% because of its capacity to cause serious complications. S. AUREUS can spread from the blood (bacteremia), to the bones (osteomyelitis), or the inner lining of the heart and its valves (endocarditis), or cause abscesses in internal organs such as the lungs and kidneys. Most at risk for these infections are surgical patients, trauma or burn victims, newborns whose immune systems are not yet developed and people with such chronic illnesses as diabetes, cancer, lung diseases or kidney diseases. People whose immune systems are suppressed due to disease, drugs or radiation therapy also are more susceptible to these bacterial infections. Based on a 1995 study, the Lewin Group, an independent consulting group, published data on the incidence, deaths and direct medical costs of S. AUREUS infections in hospitalized patients in the New York City metropolitan area. The report found that in 1995 the total direct medical costs incurred as a result of S. AUREUS infections was estimated at $32,100 per patient. S. AUREUS-associated hospitalizations resulted in more than twice the length of hospitalization stay, twice the deaths and twice the medical costs compared to an average hospital stay. Methicillin-resistant and methicillin-sensitive infections had similar direct

medical costs, but resistant infections caused more deaths (21% versus 8%). These infections are difficult to treat because the bacteria that cause them are highly virulent and are resistant to many currently available antimicrobial drugs. Overall, 70% of the bacteria causing Gram-positive infections are resistant to at least one of the drugs most commonly used to treat these infections. Although the contribution of antibiotic resistance to the outcome of such infections is unclear, hospital-acquired infections of the bloodstream may represent the eighth leading cause of death in the U.S. The rise of antibiotic resistance has markedly curtailed options for treating these infections. The first penicillin-resistant strains of S. AUREUS were identified in 1944, and by the late 1950's, approximately half of S. AUREUS infections were of this type. Methicillin-resistant strains were identified in 1961, just one year after the introduction of this antibiotic. The CDC currently estimates that in large, urban U.S. hospitals, up to 55% of S. AUREUS infections are resistant to methicillin. In 1997, the first S. AUREUS strains with notably reduced sensitivity to vancomycin (so called, vancomycin intermediate sensitivity S. AUREUS - VISA strains) and teicoplanin were discovered. VISA strains have been isolated in 23 states within the U.S. and have contributed to the death of patients in the U.S., Europe and Japan.

THE BIOTECHNOLOGY INDUSTRY (SOURCE: ERNST & YOUNG LLP, ANNUAL BIOTECHNOLOGY INDUSTRY REPORTS 1993 - 2001.)

More than 250 million people worldwide have been helped by the more than 117 biotechnology drug products and vaccines approved by the U.S. Food and Drug Administration (FDA). Of the biotech medicines on the market, 75 percent were approved in the last six years. There are more than 350 biotech drug products and vaccines currently in clinical trials targeting more than 200 diseases, including various cancers, Alzheimer's disease, heart disease, diabetes, multiple sclerosis, AIDS and arthritis.

Biotechnology is responsible for hundreds of medical diagnostic tests that keep the blood supply safe from the AIDS virus and detect other conditions early enough to be successfully treated. Home pregnancy tests are also biotechnology diagnostic products. Consumers are already enjoying biotechnology foods such as papaya, soybeans and corn. Hundreds of biopesticides and other agricultural products are also being used to improve our food supply and to reduce our dependence on conventional chemical pesticides. Environmental biotechnology products make it possible to clean up hazardous waste more efficiently by harnessing pollution-eating microbes without the use of caustic chemicals. Industrial biotechnology applications have led to cleaner processes that produce less waste and use less energy and water in such industrial sectors as chemicals, pulp and paper, textiles, food, energy, and metals and minerals. For example, most laundry detergents produced in the United States contain biotechnology-engineered enzymes. DNA fingerprinting, a biotech process, has dramatically improved criminal investigation and forensic medicine, as well as afforded significant advances in anthropology and wildlife management. There are approximately 1,273 biotechnology companies in the United States, of which approximately 300 are publicly held. Market capitalization, the amount of money invested in the U.S. biotechnology industry, increased 156 percent in one year, soaring from $137.9 billion in 1999 to $353.5 billion in 2000. The biotechnology industry more than doubled in size since 1993, with revenues increasing from $8 billion in 1993 to $22.3 billion in 2000. The U.S. biotechnology industry currently employs 150,800 people; that's more than all the people employed by the toy and sporting goods industries. Biotechnology is one of the most research-

intensive industries in the world. The U.S. biotech industry spent $10.7 billion on research and development in 2000. The top five biotech companies spent an average of $89,400 per employee on R&D in 2000. This compares with an average of $37,200 per employee spent by the top pharmaceutical companies.

The biotech industry is regulated by the Food and Drug Administration (FDA), the Environmental Protection Agency (EPA) and the Department of Agriculture (USDA). Development of Biopharmaceutical Products (Source: Biotechnology Industry Organization) Biopharmaceutical products, vaccines, etc are classified as "biological products" under FDA regulations. The steps required before a biological product may be marketed in the U.S. generally include pre-clinical studies and the filing of an initial new drug ("IND") application with the FDA, which must be accepted by the FDA before human clinical studies may commence. The initial human clinical evaluation, called a Phase I trial, generally involves administration of a product to a small number of normal healthy volunteers to test for safety. Phase II trials involve administration of a product to a limited number of patients with a particular disease to determine dosage and safety, as well as provide indications of efficacy. Phase III trials examine the efficacy and safety of a product in an expanded patient population at geographically dispersed clinical sites. Phase IV trials monitor for adverse effects and are undertaken post-licensure as additional large-scale, long-term studies of morbidity and mortality. The FDA reviews the clinical plans and the results of trials and can discontinue the trials at any time if there are significant safety issues. Biological products, once approved, have no provision allowing competitors to market generic versions. Each biological product must undergo the entire development process in order to be approved. The results of all trials are submitted in the form of a BLA/New Drug Application ("NDA") for approval to commence commercial sales. For BLA/NDA approval, the FDA requires, among other things, that the prospective manufacturer's methods conform to the agency's GMP regulations, which must be followed at all times and that the prospective manufacturer submit three conformance lots in support of the application. In complying with standards set forth in these regulations, manufacturers must continue to expend time, money and effort in the area of production and quality control to ensure full regulatory compliance. The approval process is affected by several factors, including the severity of the disease, the availability of alternative treatments, and the risks and benefits demonstrated in clinical trials. The FDA also may require post-marketing surveillance to monitor potential adverse effects of the product. The regulatory process can be modified by Congress or the FDA in specific situations.

TARGET SELECTION, SCREENING AND TESTING TARGET SELECTION

We focus on infectious diseases representing large and growing market opportunities with significant unmet medical needs. The selection of a particular therapeutic target relative to those infectious diseases takes into consideration the likelihood that our proprietary compound library will yield biologically active drug molecules. The final selection is based on the probability of being able to generate a robust medicinal chemistry SAR analysis to assist lead optimization and secure relevant intellectual property rights.

SCREENING AND LEAD OPTIMIZATION

We believe that our efficiency in selecting a lead chemical structure from many of our focused library distinguishes us from our competitors. Our ability to discover multiple compounds with antibiotic activity, as exemplified by our drug candidates, enhances early progress toward lead optimization.

The initial testing and proof of concept is accomplished through the use of directed but diverse cell-based and biochemical assays. Cell-based assays are used to analyze a drug candidate's activity in an environment similar to the environment within which the drug will interact in the infected host. These cell-based assays also help us to assess the cytotoxicity of drug candidates and the ability to penetrate host cell walls or membranes. This information, together with information our scientists (Dr. Kevin Smith and Mr. David Kien) gather on the metabolic profile of a compound, is highly valuable both when selection among lead candidates is necessary and also in later stages of development.

Secondary assays of normal host cell functions are also used early in the discovery process to identify unwanted toxicities. The conventional high-throughput screening employed at most major pharmaceutical companies typically relies upon the ability to screen millions of diverse synthetic compounds against purified enzymes in in-vitro biochemical assays. These screening efforts require tremendous technology and manpower resources, yet have led to the development of relatively few antibiotic products that are currently approved. Problems encountered with this approach include very low overall hit rates and considerable effort to eliminate the false hits caused by impurities, chemically active compounds or irrelevant mechanisms of inhibition. The hits that emerge from in vitro screens are often not "drug-like" molecules for a variety of reasons, including an inability to permeate cells and instability. Converting these hits into molecules that are more drug-like in character is often difficult. We believe our screening and lead optimization processes are more streamlined than those of many of our competitors.

PHARMACOLOGY AND PRE-CLINICAL DEVELOPMENT

Once we have identified lead compounds, they are tested using in vitro and in vivo pharmacological studies and in vivo animal models of antibiotic efficacy. Using in vitro studies, our scientists are able to ascertain the relevance of intracellular activation, metabolism and protein binding. The in vivo pharmacokinetic studies identify the percentage of oral bioavailability and whole body metabolism of the compound. The animal model provides data on the efficacy of the compound and firmly establishes a proof of concept in a biologically relevant system.

OPERATIONS TO DATE

Since our inception we have recruited key staff in the areas of management, clinical research and development, and a staff environmental lawyer. Management has completed restructuring of the Board of Directors and has restructured the focus of the business model to include development of our Antimicrobials and Biopharmaceutical affiliates. We completed the reverse merger of Nova Biogenetics, Inc. incorporated from Healthcare Network Solutions, in March 2003, and are

moving forward with both private placement and secondary offering strategies in an attempt to achieve the required funding for future development of our two divisions. There can be no assurance that funds will be available, or, if available, that it will be on terms deemed reasonable to management.

NOVA SPECIALTY CHEMICALS, INC.

Nova Specialty Chemicals, Inc. ("Nova Specialty Chemical") (incorporated in Delaware on January 30, 2004) is committed to the development, marketing and sale of leading antimicrobial and biostatic products. The Company's antimicrobial technology is formulated as an alternative to conventional sanitizers, disinfectants, bleaches, biocides and preservatives. Nova Specialty Chemicals proprietary antimicrobial products are more durable, effective, and safe, and can make claims that other products may not be able to make.

Nova Specialty Chemicals is attempting to capture market opportunities through a business strategy that encompasses superior research and development supporting six distinct market segments. These segments include: Building Materials, Ink, Dyes and Coatings, pulp and paper industry, Latex and other Emulsions, After market Clear Coatings and Resins and a multitude of OEM manufacturing. These divisions offer the Company lucrative business opportunities as well as significant revenue diversification. Management believes that the Company's technology will be a significant force in the future antimicrobial market. To date, Nova Specialty Chemicals has Five U.S. patents and Seven EPA registrations.

The primary core technology contains no heavy metals, formaldehyde treatment or phenol groups, and is the only non-toxic antimicrobial. Unlike other antimicrobial materials, the Company's product has not been shown to allow or cause microbial adaptation, resistance, mutation, diffusion, or migration. It is different from conventional sanitizers, disinfectants, or biocides that are extremely toxic and contaminate the environment with undesirable chemicals. Some of the differences are in its chemical nature, effectiveness, durability and safety. This technology has a advantage over previously known methods and applications: the antimicrobial component material is bonded to the cell or surface. Microorganisms are then destroyed by simple contact with the surface. Nova Specialty Chemicals antimicrobial products bond to almost any surface, creating unlimited applications for the Company's technology.

Unlike most other biocides, Nova Specialty Chemicals antimicrobial is effective against single-celled organisms. Since it does not dissipate, it minimizes or eliminates the potential for microorganisms to adapt, build up tolerance, or become resistant. It acts by rupturing the cell membrane, not by poisoning the cell. By contrast, most other antimicrobials, sanitizers and disinfectants are designed to diffuse and be absorbed. Once absorbed, they act by poisoning the microorganisms or causing fatal mutations. However, as they diffuse, they lose strength, and adaptation can and usually does occur.

Unlike conventional biocides and anti-viral drugs that are designed to volatilize and be absorbed by organisms, the Nova Specialty Chemicals antimicrobial is a durable, broad spectrum antimicrobial that chemically bonds to, and literally becomes part of, the application surface. Most surfaces remain antimicrobial for an extended period of time. Nova Specialty Chemicals

antimicrobial acts as microorganisms come into direct contact with it. Since the antimicrobial is not absorbed by organisms, but remains a part of each application surface, it, in effect, transforms conventional surfaces and materials into active antimicrobial surfaces. These surfaces remain effective for extended periods, which can result in a significant reduction of some viruses and infections caused by air-borne microbial contaminants.

Unlike other antimicrobial products on the market, Nova Specialty Chemicals antimicrobial products molecularly bond to numerous surfaces and are presently being used in a wide range of applications, (e.g. industrial, medical, commercial and healthcare use, synthetic, woven and non-woven textile products, fibers, fabrics, liquids, cleaning products for general households, sealants, adhesives, stains, caulking compounds, coating systems and numerous other surface materials). The Company controls a technology that not only effectively kills a broad spectrum of microorganisms, including viruses, mold, mildew, fungi, yeasts and gram (+) and gram (-) bacteria, but also permanently bonds molecularly to most surfaces to form an active antimicrobial surface which continues to kill microorganisms for extended periods of time.

Nova Specialty Chemicals antimicrobial products contain no heavy metals, tin, lead, mercury or formaldehyde. Nova Specialty Chemicals products are water-based and dilutable in water, and they do not require solvents for dilution like many other antimicrobials. Nova Specialty Chemicals core technology products are non-toxic and are biodegradable.

Nova Specialty Chemicals antimicrobial products maintain permanent antimicrobial action, killing germs, viruses and bacteria on contact. They also kill germs that cause odors in areas such as bathrooms (basins, toilets, etc.), floors, basements, hospital rooms, attics, closets, laundry and storage rooms, and pet areas. Unlike many other antimicrobials, Nova Specialty Chemicals antimicrobial products provide long-lasting residual activity on a surface thus eliminating the worry of re-infestation by harmful microorganisms, bacteria and most viruses.
To capitalize on the emergence of this need, Nova Specialty Chemicals will continue to invest in its Research & Development activities to the extent that our limited funds permit. To support this plan, the Company's operations strategy will continue to outsource all production, warehousing, and distribution functions in order to conserve capital for utilization within Research & Development. This strategy, while conserving capital, also allows for relatively low personnel requirements, more manageable inventory levels, and a more predictable cost-of-goods for low volume new products.

Nova Specialty Chemicals intends to compete on the basis of technological advantage, leverage of worldwide distribution and strategic alliances, the resources of its marketing partners, specialty niche marketing, the knowledge of its performance characteristics, its antimicrobial base products, and the quality of its technical assistance and the service furnished to its customers.

The Company's Management, Research, Operational and Marketing teams have developed a strategy to offer its antimicrobial products to the marketplace. To that end, Nova Specialty Chemicals has a three distribution agreements, and maintains partnering relationships to successfully sell its antimicrobial products in the marketplace. The Company is negotiating with

additional leading distributors and manufacturers to use and sell Nova Specialty Chemicals antimicrobial, preservative products and specialty chemicals.

MISSION STATEMENT

At Nova Specialty Chemicals, the pursuit of new ideas to improve and solidify our business has always been paramount. We constantly strive to set new standards for quality, integrity and efficiency in all of our affairs. Our innovations are intended to propel us into the forefront of antimicrobial research, (however, due to limited resources, such intentions may be difficult, if not impossible to fulfill).

Through a dynamic network of synergistic partnerships, we help the world's leading companies debut exciting, cutting-edge products that are built upon a framework of quality, safety and reliability. We also manage and oversee strategically located Master Licensees, which ensures conformity and adherence to our environmental commitments pertaining to our specialty chemical products.

All of this is accomplished with an unwavering resolve to conduct our business with the highest standards of excellence.

INDUSTRY - ANTIMICROBIALS

Nova Specialty Chemicals' primary focus is to exploit its proprietary technology to become a leader in antimicrobials and biocides for consumers, Original Equipment Manufacturing, industrial, institutional, environmental services, and various biochemical related industries. Nova's products are an easily applied reactive technology that modifies surfaces of all types, by creating an invisible covalent bond between surfaces and a variety of chemical agents.

Through the cross linking technology, these antimicrobial properties and other chemical agents can impart many performance-enhancing characteristics, such as residual antimicrobial activity, removal of surface-borne and air-borne allergens which may cause respiratory discomfort or asthma, infection resistance, anti-inflammation, lubricity and drug delivery onto many surfaces without changing the dimensions or physical properties of the modified surfaces.

Nova Specialty believes that its antimicrobial technologies and other related biochemicals have properties that make its products more durable, effective and safer than those currently available conventional antimicrobials, non-antibiotics, preservatives or biocides. Nova Specialty also believes that certain manufacturers who utilize its technologies will significantly improve the performance of their products and in some situations differentiate their products in a highly competitive marketplace.

SPECIALTY CHEMICAL INDUSTRY

Nova Specialty Chemical is currently engaged in testing multiple applications of its core technology and products with leading manufacturers, many of whom are Fortune 500 companies. The Company is committed to a value-added strategy to have our antimicrobial technology

incorporated into the products of these leading manufacturers. It is Nova Specialty Chemicals intention to produce co-branded products in the future.

In addition, Nova Specialty intends to follow a path taken by many other proprietary specialty chemical Research and Development Companies and has targeted leading specialty chemical distributors representing many vertical markets such as the Industrial and Institutional Industry, paints, coatings and adhesives, plastics, textiles, and pulp and paper. The Company aligns with distributors that sell Nova products on either an exclusive or non-exclusive basis to specific customers, for specific customer applications, or into specific vertical industry markets.

Nova Specialty manages this program so that, where possible, the distributor can take product and stock in their locations. The stocking program, potential sales opportunities and outlook for future sales are key requirements prior to entering into an agreement with a distributor. The Company knows our products have long sales cycles, however, we are interested in making long term agreements with distributors that can expend appropriate time marketing and selling our product and moving quantities into the marketplace.

In addition, the marketing of Nova Specialty products within the institutional and industrial segments and other key vertical industries will be consistent, as products that contain the Nova technology will be clearly labeled. Advertising for the Company, its technology, and its products will consist of traditional media, printed material in high distribution trade journals, direct mail, and active, visible participation in appropriate industry conventions. And as a result of the distribution agreements, Nova Specialty works very closely with distributors providing leads and opportunities and we are committed to supporting our distributors with strong technical personnel, sales and marketing support, and training. Nova Specialty works with distributors regularly (monthly sales calls, quarterly/annual meetings, etc.) to understand product pipeline and forecasting, key opportunities, and problem accounts, with a focus on ensuring goals are being met, appropriate levels of inventory are on hand to support sales effort, and growth opportunities are targeted and executed.

SUB-REGISTRATIONS

THE COMPANY CURRENTLY ALLOWS COMPANIES TO SUB REGISTER OUR TECHNOLOGY AND REGISTRATIONS AND we coordinate with distributors where applicable. As new products are developed some will be made available for private label distribution, particularly those that make non-pesticidal claims. The expansion of sub registered label sales will only be executed in situations where both the anticipated volume and pricing are such that positive profitability is available.

LICENSING VALUE ADDED TECHNOLOGY

Utilization of Nova Specialty Chemicals patented technology in leading consumer goods offered by other organizations represents potentially lucrative licensing revenues for the Company. The unique attributes of Nova Specialty Chemicals technology permit incorporation into existing products as a value-added ingredient that imparts anti-microbial properties to the base product.

Marketing programs for value-added products are designed to support the global licensing strategy of Nova Specialty. The Company intends to pursue additional licensing agreements with manufacturers that the Company anticipates will contain a marketing portion that outlines the requirements that each joint product will bear a notification of "Protected By Nova " or other similar awareness building program. This extension of the Company's trademarks into categories, products, and geographies will enhance the long term branding campaign.

MARKET COMPETITION - ANTIBIOTICS

Our industry is highly competitive and subject to rapid technological change. Significant competitive factors in our industry include: product effectiveness; safety; timing and scope of regulatory approvals; price of products; availability of supply; patent protection; and sales and marketing capabilities Many of the companies competing against us have total cash resources substantially greater than our own. In addition, many of our competitors have significantly greater experience in testing pharmaceutical and other therapeutic products, obtaining FDA and other regulatory approvals of products for use in health care and marketing and selling those products. Accordingly, our competitors can succeed more rapidly than we will in obtaining FDA approval for products and achieving widespread market acceptance. If we obtain necessary regulatory approvals and commence significant commercial sales of our products, we will also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which we have limited or no experience. We believe that the quality and breadth of our technology and our goal to recruit and retain skilled employees, to be aggressive in seeking patent protection for our discoveries and our research and development capabilities may be or may lead to competitive strengths. However, many pharmaceutical and biopharmaceutical companies have significantly larger intellectual property portfolios than we do, more substantial capital resources than we have, and greater capabilities and experience than we do in pre-clinical and clinical development, sales, marketing, manufacturing and regulatory affairs. Any drug candidates that we successfully develop will compete with existing therapies and therapies that are likely to become available in the future. Many organizations, including large pharmaceutical and biopharmaceutical companies as well as academic and research organizations and government agencies, are pursuing novel drug therapies that target the same viral diseases. Some of the principal pharmaceutical companies with which we expect to compete directly include Boehringer Ingelheim, Bristol-Myers Squibb Co., F. Hoffman La Roche Holdings Ltd., GlaxoSmithKline plc, Johnson & Johnson, Merck and Co., Pfizer Inc and Schering-Keyes Corp. Some of the principal biopharmaceutical companies with which we expect to compete directly include Achillion Pharmaceuticals, Inc., Chiron Corp., Human Genome Sciences, Inc., InterMune, Inc., Gilead Sciences, Inc., Ribapharm Inc., Triangle Pharmaceuticals, Inc., Trimeris, Inc. and Vertex Pharmaceuticals Incorporated. Most, if not all, of these companies and organizations, either alone or with their collaborative partners, have substantially greater financial, technical and human resources than we currently have or will have in the foreseeable future. We believe that a significant number of drugs are currently under development and will become available in the future. We anticipate that we will face intense and increasing competition as new products enter the market and advanced technologies become available. Our competitors' products may be more effective, or more effectively marketed and sold, than any product we may commercialize. Competitive products may render our product obsolete or non-competitive before we can recover the expenses of developing and commercializing any of our drug candidates.

We are also aware that the development of a cure or new treatment methods for the diseases we are targeting could render our products non-competitive or obsolete.

REGULATION FDA REQUIREMENTS FOR DRUG COMPOUNDS

The research, testing, manufacture and marketing of drug products are extensively regulated by numerous governmental authorities in the United States and other countries. In the United States, drugs are subject to rigorous regulation by the FDA. The Federal Food, Drug and Cosmetic Act, and other federal and state statutes and regulations govern, among other things, the research, development, testing, manufacture, storage, record keeping, labeling, promotion and marketing and distribution of pharmaceutical products. If we fail to comply with applicable regulatory requirements, we may be subject to a variety of administrative or judicially imposed sanctions. The steps ordinarily required before a new pharmaceutical product may be marketed in the United States include pre-clinical laboratory tests, animal tests and formulation studies, the submission to the FDA of an investigational new drug application, or IND, which must become effective before clinical testing may commence in the United States, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which it is being tested. Pre-clinical tests include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal trials to assess the potential safety and efficacy of the drug candidate. The conduct of the pre-clinical tests and formulation of compounds for testing must comply with federal regulations and requirements. The results of pre-clinical testing are submitted to the FDA as part of the IND to justify the administration of the drug candidate to human subjects in the proposed clinical trial. A 30-day waiting period after the filing of each IND is required prior to the commencement of clinical testing in humans. If the FDA has not commented on or questioned the IND within this 30-day period, the proposed clinical trial may begin. If the FDA has comments or questions, the questions must be answered to the satisfaction of the FDA before initial clinical testing can begin. In addition, the FDA may, at any time, impose a clinical hold on ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization and then only under terms authorized by the FDA. In some instances, the IND process can result in substantial delay and expense. Clinical trials involve the administration of the drug candidate to healthy volunteers or patients under the supervision of a qualified principal investigator. Clinical trials must be conducted in compliance with federal regulations and requirements, under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Both, the study protocol and informed consent information for patients in clinical trials must be approved by the institutional review board at each institution where the trials will be conducted. Clinical trials to support new drug applications for marketing approval are typically conducted in three sequential phases, but the phases may overlap.

In Phase I, the initial introduction of the drug candidate into healthy human subjects or patients, the drug candidate is tested to assess metabolism, pharmacokinetics and pharmacological actions and safety, including side effects associated with increasing doses. Phase II usually involves trials in a limited patient population, to determine dosage tolerance and optimum dosage, identify possible adverse effects and safety risks, and provide preliminary support for

the efficacy of the drug candidate in the indication being studied. If a drug candidate is found to be effective and to have an acceptable safety profile in Phase II evaluations, Phase III trials are undertaken to further evaluate clinical efficacy and to further test for safety within an expanded patient population at geographically dispersed clinical trial sites. There can be no assurance that Phase I, Phase II or Phase III testing of our drug candidates will be completed successfully within any specified time period, if at all. After completion of the required clinical testing, generally a new drug application, or NDA, is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States.

The NDA must include the results of extensive clinical and pre-clinical testing and the compilation of data relating to the product's chemistry, pharmacology, manufacture, safety and effectiveness. The cost of the NDA is substantial, both in terms of studies required to generate and compile the requisite data, as well as the mandatory user fees submitted with the application. The FDA has 60 days from its receipt of the NDA to determine whether the application will be accepted for filing based on the agency's threshold determination that the NDA is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under federal law, the FDA has 180 days in which to review the application and respond to the applicant. The review process is often significantly extended by FDA requests for additional information or clarification regarding information already provided in the submission. The FDA typically will refer the application to the appropriate advisory committee, typically a panel of clinicians and statisticians, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee. If FDA evaluations of the NDA and the manufacturing facilities are favorable, the FDA may issue an approval letter, or, in some cases, an approvable letter followed by an approval letter. Approvable letters usually contain a number of conditions that must be met in order to secure final approval of the NDA. When and if those conditions have been met to the FDA's satisfaction, the FDA will issue an approval letter. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of NDA approval, the FDA may require post-marketing testing and surveillance to monitor the drug's safety or efficacy, or impose other conditions. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems occur following initial marketing. If the FDA's evaluation of the NDA submission or manufacturing facilities is not favorable, the FDA may refuse to approve the NDA or may issue a not approvable letter. The not approvable letter outlines the deficiencies in the submission and often requires additional testing or information. The FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

FOREIGN REGULATION OF DRUG COMPOUNDS APPROVAL

A drug candidate must meet the comparable regulatory authorities standards necessary in foreign countries prior to the commencement of marketing of the drug candidate in those countries, whether or not FDA approval has been obtained. The approval procedure varies among countries and can involve additional testing. The time required may differ from that required for FDA approval. In the European Union, or EU, investigational products are subject to extensive regulatory requirements. As in the United States, the marketing of medicinal products has for many years been subject to the granting of marketing authorizations by relevant regulatory

agencies. In the EU, approval of new chemical compounds can at present be obtained only through one of two processes:

1. Mutual Recognition Procedure: An applicant submits an application in one EU member state, known as the reference member state. Once the reference member state has granted the marketing authorization, the applicant may choose to submit applications in other concerned member states, requesting them to mutually recognize the marketing authorization already granted. Under this mutual recognition process, authorities in other concerned member states have 55 days to raise objections, which must then be resolved by discussions among the concerned member states, the reference member state and the applicant within 90 days of the commencement of the mutual recognition procedure. If any disagreement remains, all considerations by authorities in the concerned member states are suspended and the disagreement is resolved through an arbitration process. The mutual recognition process results in separate national marketing authorizations in the reference member state and each concerned member state.

2. Centralized Procedure: This procedure is currently mandatory for products developed by means of a biotechnological process and optional for new active substances and other "innovative medicinal products with novel characteristics." Under this procedure, an application is submitted to the European Agency for the Evaluation of Medical Products. Two EU member states are appointed to conduct an initial evaluation of each application, the so-called Rapporteur and Co-Rapporteur countries. These countries each prepare an assessment report, which are then used as the basis of a scientific opinion of the Committee on Proprietary Medical Products, or CPMP. If this opinion is favorable, it is sent to the European Commission, which drafts a decision. After consulting with the member states, the European Commission adopts a decision and grants a marketing authorization, which is valid throughout the EU and confers the same rights and obligations in each of the member states as a marketing authorization granted by that member state. Nova envisages that marketing applications for its drug candidates will be submitted via the "centralized procedure".

Several other European countries outside of the EU, for example in the Eastern European region, accept EU review and approval as a basis for their own national approval. Until recently, submissions to regulatory authorities in Asia for marketing authorization have been primarily based on using prior approvals in either the United States or the EU in addition to small, locally conducted studies. More and more companies are now performing key Phase III clinical trials in several of the major Asian countries such as Japan, China, Taiwan and South Korea. Local clinical trial applications, equivalent to INDs, are expected to be filed in several Asian countries including those listed above to permit the conduct of such key clinical trials in those regions. Marketing applications similar to the United States NDA will be submitted to the appropriate regulatory authorities upon completion of all clinical trials. Marketing Applications Format As part of the ten-plus years of International Conference on Harmonization, or ICH, standardization initiatives spearheaded by the United States, EU and Japan, future marketing applications in these regions will be submitted as a core global dossier known as the Common Technical Document, or CTD. The CTD will be the required submission format starting in summer 2003 and beyond. Electronic CTDs, or e-CTD, are currently being piloted and are anticipated to be required from that time point. Non-ICH regions such as Eastern and Central Europe, Latin

America and China have indicated that the CTD will be an acceptable submission format. Hazardous Materials Our research and development processes involve the controlled use of hazardous materials, chemicals and radioactive materials and produce waste products. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposing of hazardous materials and waste products. We do not expect the cost of complying with these laws and regulations to be material.

MARKET COMPETITION - ANTIMICROBIALS

INTELLECTUAL PROPERTY

To protect our proprietary rights, we rely generally on confidentiality agreements with employees and third parties, and agreements with Consultants and vendors, although we have not signed such agreements in every case. These steps may be inadequate to deter misappropriation of our proprietary information. We may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights.

EMPLOYEES

We have eight full-time employees, two of whom are engaged in administrative, billing, one is the Company's environmental lawyer, two perform research and client service activities, and three of whom, are in the antimicrobial sales. Additionally, from time to time we engage consultants and part-time contract employees on an as and when needed basis.

PATENTS

Patents, Patent Applications & EPA Registrations Granted United States Patents:

United States Patent Number 6,120,587 Abstract: The composition formed by mixing an organosilane, optionally having a nonhydrolizable organic group, but having one or more hydrolyzable groups, with a polyol containing at least two hydroxyl groups, wherein at least any two of the hydroxy groups are separated by no more than two intervening atoms. Water-stabilized organosilane compounds. A water stable composition made from the polyol and organosilane or compound and water. A method of treating a substrate by mixing or contacting the substrate with the product compound, or composition of this invention for a period of time sufficient for treatment of the substrate. A treated substrate having adhered thereto the product, compound, or composition of this invention. A method of dyeing and treating a substrate. A method of antimicrobially treating a food article. A method of antimicrobially coating a fluid container. A method of antimicrobially coating a latex medical article. A method of making a siloxane in the presence of a stabilizer.

United States Patent Number 6,113,815 Abstract: The composition formed by mixing an organosilane with an ether. Water-stabilized organosilane compounds. A water stable composition made from the ether and organosilane composition and water. A method of treating a substrate by mixing or contacting the substrate with the product, compound, or composition of this invention for a period of time sufficient for treatment of the substrate. A treated substrate having adhered thereto the product, compound, or composition of this invention. A method of

dyeing and treating a substrate. A method of antimicrobially treating a food article. A method of antimicrobially coating a fluid container. A method of antimicrobially coating a latex medical article.

United States Patent Number 5,954,869 Abstract: The composition formed by mixing an organosilane, optionally having a nonhydrolizable organic group, but having one or more hydrolyzable groups, with a polyol containing at least two hydroxyl groups, wherein at least any two of the hydroxy groups are separated by no more than two intervening atoms. Water-stabilized organosilane compounds. A water stable composition made from the polyol and organosilane or compound and water. A method of treating a substrate by mixing or contacting the substrate with the product, compound, or composition of this invention for a period of time sufficient for treatment of the substrate. A treated substrate having adhered thereto the product, compound, or composition of this invention. A method of dyeing and treating a substrate. A method of antimicrobially treating a food article. A method of antimicrobially coating a fluid container. A method of antimicrobially coating a latex medical article. A method of making a siloxane in the presence of a stabilizer.

                                                 Applications
                                                 ------------
Docket Number   Region       Serial Number  Description
-------------   ------       -------------  -----------
BST-105         US           08/965,441     Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-100D4       US           09/590,493     Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-101D1       US           09/654,232     Ether-Stabilized Organosilane Compounds and Methods for Using Same
BSI-102D1       US           09/967,486     Water-Stabilized Organosilane Compounds and Methods for Using Same

FOREIGN PATENTS ISSUED:

Docket Number   Region       Serial Number  Description
-------------   ------       -------------  -----------
BST-99NZ        New Zealand  329397         Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-100NZ       New Zealand  330379         Water-Stabilized Organosilane Compounds and Methods for Using Same

FOREIGN PATENTS PENDING:
                                                 Applications
                                                 ------------

Docket Number   Region       Serial Number  Description
-------------   ------       -------------  -----------
BST-99 BZ       Brazil       PI 9702243-8   Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-99 IL       Israel       122,555        Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-99 MX       Mexico       980185         Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-100 AR      Argentina    P 980102138    Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-100 BR      Brazil       PI 9806344-8   Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-100 CA      Canada       2236893        Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-100 CA      Canada       2236893        Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-100 EPO     EC           98303600.5     Water-Stabilized Organosilane Compounds and Methods for Using Same

BST-100 IL      Israel       124316         Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-100 JP      Japan        10-125119      Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-100 MX      Mexico       983600         Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-100 Div1IL  Israel       136872         Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-101 BR      Brazil       PI9811509-0    Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-101 CA      Canada       2296397        Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-101 EPO     EC           98935768.6     Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-101 JP      Japan        2000-503088    Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-101 MX      Mexico       627            Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-102 BR      Brazil       PI9812102-4    Water-Stabilized Organosilane Compounds and Their Use
BST-102 CA      Canada       2296395        Water-Stabilized Organosilane Compounds and Their Use
BST-102 EPO     EC           98935832       Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-102 JP      Japan        2000-503089    Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-102 MX      Mexico       625            Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-102 PCT                  PCT/US98/14985 Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-105C1X CA   Canada       2292005        Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-105C1X JP   Japan        11-355128      Water-Stabilized Organosilane Compounds and Methods for Using Same
BST-105C1X MX   Mexico       9911802        Water-Stabilized Organosilane Compounds and Methods for Using Same

CURRENT EPA REGISTRATIONS

US EPA Registration Number 70871-1 Water stabilized organosilane antimicrobial compound/end use application.

US EPA Registration Number 70871-2 Water stabilized organosilane antimicrobial compound/manufacturers' use.

US EPA Registration Number 70871-3 Water stabilized organosilane antimicrobial compound/end use application.

US EPA Registration Number 70871-4 Water stabilized organosilane antimicrobial compound/end use application.

US EPA Registration Number 70871-54 Water stabilized organosilane antimicrobial compound/end use application.

US EPA Registration Number 70871-6 Solvent based organosilane antimicrobial compound.

US EPA Registration Number 70871-7 Disinfectant and Antimicrobial agent. Manufacturing use product.

US EPA Registration Number 70871-8 Disinfectant and Antimicrobial agent.

RISK FACTORS

Any investment in our common stock involves a significant degree of risk. You should not invest in our common stock unless you can afford to lose your entire investment. You should consider carefully the following risk factors and other information in this Form 10-KSB before deciding whether to invest in our common stock. We have only a limited operating history and have not operated profitably since commencement of operations. Our operations have never been profitable. We have incurred net losses since inception through June 30, 2004 of $1,620,338 and it is expected that we will continue to incur operating losses in the future. In fiscal 2004, we generated revenues of $261,881 and had a net loss of $703,686. As of June 30, 2004, we had a working capital deficit of $995,778. There is no assurance that we will operate profitably in the future. Our independent auditors have added an explanatory paragraph to their audit opinion, issued in connection with our financial statements, which states that our ability to continue as a going concern is uncertain due to our continued operating losses, the excess of our liabilities over our assets and uncertain conditions we face in our day-to-day operations.

Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our future revenues are unpredictable. As a result of our limited operating history and the highly competitive market in which we compete, we are unable to accurately forecast our revenues.

Revenues and operating results generally depend on the volume of, timing of and ability to fulfill services, and competitive conditions, which are difficult to forecast. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues in relation to our planned expenditures would have an immediate adverse effect on our business, prospects, financial condition and results of operations. We will need to raise additional funds to provide sufficient working capital to continue our operations. If we are unable to raise additional capital, our results of operations will be materially adversely affected. As described above, the report of our independent auditors for fiscal 2004 contains a qualification as to our ability to continue as a going concern. We will need to raise additional capital or our ability to continue our operations, implement our business strategy and to generate any significant revenues will be adversely affected. The amount of additional capital we require is based upon a number of factors, including the level of our continuing revenues and costs associated with the marketing of our services. Even if we raise additional capital, we cannot guarantee that we will ever generate any significant revenues or report profitable operations. In addition, our business plan may change or unforeseen events may occur which require us to raise additional funds. We do not presently have any agreements or understanding with third parties which will enable us to raise additional capital. Given our relatively small size, history of losses and overall weakness in the capital markets, we are unsure as to our ability to raise additional working capital. Even if we locate a source willing to invest in our company, additional funds may not be available on terms acceptable to us or when we need such funds. The unavailability of additional funds when needed is likely to have a material adverse effect on us. If adequate funds are not available to satisfy short-term or long-term requirements, our management will be required to consider a variety of other options including

curtailing the development and growth of the services we propose to offer, as well as other cost cutting actions, including suspending all or a portion of our activities. If we raise additional capital through the issuance of debt, this will result in increased interest expense. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of Nova BioGenetics Inc held by existing shareholders will be reduced and those shareholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. There can be no assurance that acceptable financing can be obtained on suitable terms, if at all. Our inability to raise the additional funds need will have a material adverse affect on our results of operations in future periods.

Fluctuations in our operating results may adversely affect our stock price and purchasers of our shares of common stock may lose all or a portion of their investment. Historically, there has been volatility in the market price for our common stock, although no active or established trading market exists. Our quarterly operating results, changes in general conditions in the economy, the financial markets or the marketing industry, or other developments affecting us or our competitors, could cause the market price of our common stock to fluctuate substantially. We expect to experience significant fluctuations in our future quarterly operating results due to a variety of factors.

FACTORS THAT MAY ADVERSELY AFFECT OUR QUARTERLY OPERATING RESULTS INCLUDE

The announcement or introduction of new services and products by us and our competitors; - our ability to retain existing clients and attract new clients at a steady rate, and maintain client satisfaction - the amount and timing of operating costs and capital expenditures relating to expansion of our business and operations; - increased government regulation; and - general economic conditions and economic conditions specific to the biotech industry. As a result of these factors, in one or more future quarters, our operating results may fall below the expectations of securities analysts and investors. In this event, the market price of our common stock would likely be materially adversely affected. In addition, the stock market in general and the market prices for biotech related companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of those companies. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance. If we lose our key personnel or are unable to attract and retain additional personnel, our ability to compete would be harmed. We are highly dependent on our management, in particular Dr. Kevin Smith, our CEO. We are parties to employment agreements with these individuals, if for any reason we should be deprived of their services our business would be adversely affected until we could find a suitable replacement. In addition, in order to pursue our product development, marketing and commercialization plans, we will need to hire additional qualified personnel with expertise in sales and marketing, and finance. Attracting and retaining qualified personnel will be critical to our success, and competition for qualified personnel is intense. We may not be able to attract and retain personnel on acceptable terms given the competition for such personnel among technology and biotech companies, and universities. Our inability to attract and retain qualified personnel could harm our business and our ability to compete.

We do not intend to pay dividends. We have never paid any dividends on our common stock and it is unlikely that we will pay any dividends in the foreseeable future due to our anticipated substantial cash requirements for future operations. We anticipate using any proceeds of investments in us and any earnings received from operations for the marketing, development and expansion of our proposed business, for operating capital and for corporate development and expansion activities.

Our common stock is regulated as a "penny stock" by the Securities and Exchange Commission. We are subject to additional regulation by the Securities and Exchange Commission under its rules regulating broker-dealer practices in connection with transactions in "penny stocks." This type of regulation may reduce the level of trading activity or your ability to sell the common stock. Penny stocks generally are equity securities with a price of less than $4.00 that are not registered on certain national securities exchanges or quoted on the Nasdaq Stock Market.
The penny stock rules require a broker-dealer, prior to a transaction in a regulated penny stock, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide information concerning his compensation for the penny stock purchase, current prices of the penny stock, and a special written determination that the penny stock is a suitable investment for the purchaser.

The market for our common stock is poorly developed. Purchasers of our securities should anticipate a thin and volatile market. Investors that purchase our common stock may not be able to sell their securities. Our common stock is currently quoted on the OTCBB. There are many days when our common stock does not trade at all. The spread between the quoted bid and ask prices is usually great. As a result of the thinly traded nature of our common stock and lack of market support by brokers or dealers, purchasers of our shares may have great difficulty in liquidating their investments.