0001360214
2013-03-31
0001360214
2012-12-31
0001360214
2013-01-01
2013-03-31
0001360214
2012-01-01
2012-03-31
0001360214
1998-07-24
2013-03-31
0001360214
IMMY:EmployeesSellingAndAdminstrativeMember
2013-01-01
2013-03-31
0001360214
IMMY:EmployeesSellingAndAdminstrativeMember
2012-01-01
2012-03-31
0001360214
IMMY:EmployeesResearchAndDevelopmentMember
2013-01-01
2013-03-31
0001360214
IMMY:EmployeesResearchAndDevelopmentMember
2012-01-01
2012-03-31
0001360214
IMMY:DirectorSellingAndAdminstrativeMember
2013-01-01
2013-03-31
0001360214
IMMY:DirectorSellingAndAdminstrativeMember
2012-01-01
2012-03-31
0001360214
IMMY:ConsultantsSellingAndAdminstrativeMember
2013-01-01
2013-03-31
0001360214
IMMY:ConsultantsSellingAndAdminstrativeMember
2012-01-01
2012-03-31
0001360214
IMMY:ConsultantsResearchAndDevelopmentMember
2013-01-01
2013-03-31
0001360214
IMMY:ConsultantsResearchAndDevelopmentMember
2012-01-01
2012-03-31
0001360214
us-gaap:WarrantMember
2013-01-01
2013-03-31
0001360214
us-gaap:WarrantMember
2012-12-31
0001360214
us-gaap:WarrantMember
2013-03-31
0001360214
2013-05-07
0001360214
2011-12-31
0001360214
1998-07-23
0001360214
2012-03-31
0001360214
us-gaap:RestrictedStockUnitsRSUMember
2013-01-01
2013-03-31
0001360214
us-gaap:StockOptionsMember
2013-01-01
2013-03-31
0001360214
IMMY:PipeInvestorsMember
2013-03-31
0001360214
IMMY:DermaStarMember
2013-03-31
0001360214
IMMY:AprilPpmMember
2013-03-31
0001360214
IMMY:UnderwriterWarrantsMember
2013-03-31
0001360214
IMMY:IrConsultantMember
2013-03-31
0001360214
us-gaap:RestrictedStockUnitsRSUMember
2012-12-31
0001360214
us-gaap:RestrictedStockUnitsRSUMember
2013-03-31
0001360214
IMMY:StockOptionPlanMember
2013-03-31
0001360214
IMMY:StockOptionPlanMember
2013-01-01
2013-03-31
0001360214
us-gaap:StockOptionMember
2013-01-01
2013-03-31
0001360214
IMMY:StockOption1Member
2013-01-01
2013-03-31
0001360214
IMMY:StockOption2Member
2013-01-01
2013-03-31
0001360214
IMMY:StockOption3Member
2013-01-01
2013-03-31
0001360214
IMMY:StockOption4Member
2013-01-01
2013-03-31
0001360214
IMMY:StockOption5Member
2013-01-01
2013-03-31
0001360214
IMMY:StockOption6Member
2013-01-01
2013-03-31
0001360214
IMMY:WarrantActivityMember
2013-01-01
2013-03-31
iso4217:USD
xbrli:shares
iso4217:USD
xbrli:shares
IMMY:Y
xbrli:pure
Imprimis Pharmaceuticals, Inc.
0001360214
10-Q
2013-03-31
false
--12-31
No
No
Yes
Smaller Reporting Company
Q1
2013
0.001
0.001
395000000
395000000
8888250
19246579
10705996
19233481
10693448
204450
61552
18979031
10035615
146160
0
146711
50000
0
848549
709559
833
0
91137
18391
55784
55784
700795
635384
19246579
10705996
18398030
9996437
25569749
24104268
43958891
34093933
8888
6772
8888250
6772066
8888250
6772066
7788236
1063278
-0.19
-1.30
-1465481
-1379088
-25569749
0
0
300000
-1465481
-1379088
-25269749
-7068
1027169
2224738
0
0
176505
0
0
375000
0
-1006087
-1195410
7068
0
150059
0
21082
1730892
-1472549
-351919
-23045011
455100
142963
9573861
1019949
308956
13573650
2500
100000
102500
-1057775
-334842
-13728707
833
-100000
833
72746
9048
177728
0
0
111871
65411
38096
605373
-142898
-48976
-204450
0
0
-140000
0
0
254142
410715
118504
4696143
75560
340230
0
21083
1730892
899
404
6997
0
0
807608
0
0
2475000
-51449
-14607
-70096
1449
14607
20096
-50000
0
-50000
8943416
551
18979031
10052640
350000
32777834
10052832
0
29336911
0
0
100250
0
0
168707
0
0
281679
0
0
27537
0
0
2500000
0
0
100000
0
50000
50000
0
300000
976300
192
0
192
0
0
-200000
1600
1600
13600
0
56087
56087
0
0
432007
0
1142603
3435314
0
0
1500
0
56087
56087
0
100000
100000
0
0
196300
0
0
241701
596281
0
596281
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Company and Background</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Imprimis Pharmaceuticals, Inc. (“Imprimis”, the “Company”,
“we”, “us”, or “our”) is a specialty pharmaceutical company focused on the commercial development
of compounded drug formulations. Imprimis expects to use its proprietary Accudel™ drug delivery technologies, proprietary
drug formulations, and its exclusive relationship with Professional Compounding Centers of America, Inc. (“PCCA”),
to identify pharmaceutical development opportunities where there are significant unmet medical needs.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s most near term drug candidate, Impracor™,
utilizes its patented Accudel topical cream formulation to enable highly targeted site-specific treatment. Impracor, which is a
Phase 3 clinical trial pain product candidate, delivers the active drug (API), ketoprofen, a non-steroidal anti-inflammatory drug
(NSAID), through the skin directly into the underlying tissues where the drug exerts its localized anti-inflammatory and analgesic
effects.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Basis of Presentation</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 28, 2012, the Company changed its name from Transdel
Pharmaceuticals, Inc. to Imprimis Pharmaceuticals, Inc. All prior references to Transdel Pharmaceuticals, Inc. have been changed
to Imprimis Pharmaceuticals, Inc. to reflect the change. On February 28, 2012, the Company effected a one-for-eight reverse stock
split and on February 7, 2013, the Company effected a one-for-five reverse stock split. All share and per share amounts and calculations
in this report reflect the effects of these reverse stock splits.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Imprimis has prepared the accompanying unaudited condensed consolidated
financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management,
all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2013. For further information, refer to the Company’s audited consolidated financial statements
and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Principles of Consolidation</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 17, 2007, Imprimis entered into an Agreement of
Merger and Plan of Reorganization (the “Merger Agreement”) by and among Imprimis, Transdel Pharmaceuticals Holdings,
Inc., a privately held Nevada corporation (“Transdel Holdings”), and Trans-Pharma Acquisition Corp., a newly formed,
wholly-owned Delaware subsidiary of Imprimis (“Acquisition Sub”). Upon closing of the merger transaction contemplated
under the Merger Agreement (the “Merger”), Acquisition Sub merged with and into Transdel Holdings, and Transdel Holdings,
as the surviving corporation, became a wholly-owned subsidiary of Imprimis. As a result of the Merger, the former owners of Transdel
Holdings became the controlling stockholders of Imprimis. Accordingly, the merger of Transdel Holdings and Imprimis is a reverse
merger that has been accounted for as a recapitalization of Transdel Holdings.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective on September 17, 2007, and for all reporting periods
thereafter, Imprimis’ operating activities, including any prior comparative period, include only those of Transdel Holdings.
All references to share and per share amounts in the accompanying consolidated financial statements and footnotes have been restated
to reflect the aforementioned share exchange. All significant intercompany accounts and transactions have been eliminated in consolidation.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On June 20, 2011, Transdel Holdings was merged with Imprimis Pharmaceuticals,
Inc., at which time Transdel Holdings ceased as a corporation, and Imprimis Pharmaceuticals, Inc. remains as the sole surviving
corporation.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Development Stage Enterprise</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is a development stage company as defined under Financial
Accounting Standards Board (“FASB”) guidance. All losses accumulated since inception have been considered as part of
the Company’s development stage activities.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">These condensed consolidated financial statements contemplate the
realization of assets and the satisfaction of liabilities in the normal course of business. The Company is a development stage
enterprise and has incurred recurring operating losses, has had negative operating cash flows and has not recognized any significant
revenues since July 24, 1998 (Inception). In addition, the Company has a deficit accumulated during the development stage of approximately
$25.6 million at March 31, 2013, and anticipates incurring further losses through the remainder of the fiscal year 2013 and beyond.
The Company has not yet generated significant sales revenue and has funded its operating losses to date through debt and equity
offerings and borrowings under its line of credit. The Company believes that its existing cash and cash equivalents will be sufficient
to cover its cash flow requirements for at least the next twelve months.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Research and Development</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company expenses all costs related to research and development
as they are incurred. Research and development expenses consist of expenses incurred in performing research and development activities
including salaries and benefits, and other overhead expenses, clinical trials, contract services and outsourced contracts.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Revenue Recognition and Deferred Revenue</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company will recognize revenues when all of the following criteria
have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price
is fixed and determinable; and (4) collectability is reasonably assured. The Company believes it will not generate significant
revenues until one or more of its drug candidates are approved by the U.S. Food and Drug Administration (“FDA”) and
the Company is able to commercialize one or more of its product candidates. Also, effective sales and marketing support must be
in place for either the drug candidates or any other products the Company may develop in order to generate any revenues. The FDA
approval process is highly uncertain and the Company cannot estimate when it will generate revenues at this time from sales of
its products.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Product Revenues</i></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Determination of criteria (3) and (4) will be based on management’s
judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances, and other adjustments will be provided for in the same
period the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or for which
services have not been rendered or are subject to refund until such time that the Company and the customer jointly determine that
the product has been delivered or services have been rendered or no refund will be required.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><i>License Revenues</i></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">License arrangements may consist of non-refundable upfront license
fees, data transfer fees, research reimbursement payments, exclusive licensed rights to patented or patent pending compounds, technology
access fees, and various performance or sales milestones. These arrangements can be multiple element arrangements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Non-refundable, up-front fees that are not contingent on any future
performance by us, and require no consequential continuing involvement on our part, are recognized as revenue when the license
term commences and the licensed data, technology and/or compound is delivered. Such deliverables may include physical quantities
of compounds, design of the compounds and structure-activity relationships, the conceptual framework and mechanism of action, and
rights to the patents or patents pending for such compounds. We defer recognition of non-refundable upfront fees if we have continuing
performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable
fee has no utility to the licensee that is separate and independent of our performance under the other elements of the arrangement.
In addition, if we have required continuing involvement through research and development services that are related to our proprietary
know-how and expertise of the delivered technology, or can only be performed by us, then such up-front fees are deferred and recognized
over the period of continuing involvement. Guaranteed minimum annual royalties are recognized on a straight-line basis over the
applicable term.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During three months ended March 31, 2013, and 2012, the Company recorded
$2,500 and $100,000 in revenues, respectively, for non-refundable royalty advances. In January 2013, we entered into a license
agreement with resolutionMD, LLC granting resolutionMD, LLC rights to our Accudel delivery technology to be used for anti-cellulite
formulations. Under the license agreement, the Company will receive $10,000 as a guaranteed minimum royalty amount for fiscal 2013
and, if applicable, additional royalty payments based on a percent (generally, 5%-7%) of net sales of any products covered under
the license agreement. The license agreement with resolutionMD, LLC, unless terminated earlier, will be valid for ten years following
the first commercial sale of a product that is covered under the license agreement. The Company does not anticipate that the license
agreement with resolutionMD, LLC will generate significant revenues for the fiscal 2013 year.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Income Taxes</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for income taxes under the provisions of Accounting
Standards Codification (“ASC”) 740, “Income Taxes”, or ASC 740. As of March 31, 2013, there were no
unrecognized tax benefits included in the condensed consolidated balance sheets that would, if recognized, affect the effective
tax rate. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
The Company had no accrual for interest or penalties in its condensed consolidated balance sheets at March 31, 2013 and December
31, 2012, and has not recognized interest and/or penalties in the consolidated statements of operations for the periods ended March
31, 2013 and 2012. The Company is subject to taxation in the United States and California. The Company’s tax years for 2000
and forward are subject to examination by the federal and state tax authorities due to the carry forward of unutilized net operating
losses.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Cash and Cash Equivalents</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Concentrations of Credit Risk</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company places its cash with financial institutions deemed by
management to be of high credit quality. The Federal Deposit Insurance Corporation (“FDIC”) provides basic deposit
coverage with limits to $250,000 per owner. At March 31, 2013, the Company had approximately $18.4 million in cash deposits in
excess of FDIC limits.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Deferred Offering Costs</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 25, 2012, the Company filed with
the Securities and Exchange Commission a registration statement on Form S-1 (as amended, the “Registration
Statement”) in connection with an underwritten public offering of its common stock (the “Public Offering”). At
December 31, 2012, the Company had deferred offering costs of $596,281 for legal, accounting and other expenses directly
related to the Public Offering. The Public Offering closed on February 13, 2013 (see Note 4), and these deferred offering
costs and any other costs directly associated with the Public Offering subsequent to December 31, 2012 were netted against
the cash proceeds to the Company arising from the Public Offering. As a result, there were no deferred offering costs at
March 31, 2013.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Furniture and Equipment</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Furniture and equipment is stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated useful lives of three to five years.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Deferred Rent</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for rent expense related to its operating leases
by determining total minimum rent payments on the leases over their respective periods and recognizing the rent expense on a straight-line
basis. The difference between the actual amount paid and the amount recorded as rent expense in each fiscal year is recorded as
an adjustment to deferred rent.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Fair Value Measurements</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Fair value measurements are determined based on the assumptions that
market participants would use in pricing an asset or liability. GAAP establishes a hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable
inputs be used when available. The established fair value hierarchy prioritizes the use of inputs used in valuation methodologies
into the following three levels:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 3%"><font style="font-size: 8pt">·</font></td>
<td style="width: 97%; text-align: justify"><font style="font-size: 8pt">Level 1: Applies to assets or liabilities for which there are quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.</font></td></tr>
<tr style="vertical-align: top">
<td><font style="font-size: 8pt">·</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">Level 2: Applies to assets or liabilities for which there are significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.</font></td></tr>
<tr style="vertical-align: top">
<td><font style="font-size: 8pt">·</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">Level 3: Applies to assets or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of March 31, 2013 and December 31, 2012, the Company did not have
any financial assets or liabilities which are measured on a recurring basis. At March 31, 2013 and December 31, 2012, the Company’s
financial instruments include cash and cash equivalents, a restricted short-term investment, accounts payable and accrued expenses,
accrued Phase 3 expenses and accrued payroll and related liabilities. The carrying amount of these financial instruments, except
for the restricted short-term investment, approximates fair value due to the short-term maturities of these instruments. The Company’s
restricted short-term investment is carried at amortized cost which approximates fair value.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Stock-Based Compensation</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">All share-based payments to employees, including grants of stock
options to employees, directors and consultants, warrants and restricted stock grants, are recognized in the condensed consolidated
financial statements based upon their fair values.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company's accounting policy for equity instruments issued to
consultants and vendors in exchange for goods and services follows FASB guidance. As such, the value of the applicable stock-based
compensation is periodically remeasured and income or expense is recognized during their vesting terms. The measurement date for
the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance
by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete. In the case
of equity instruments issued to consultants, the fair value of the equity instrument is primarily recognized over the term of the
consulting agreement. In accordance with FASB guidance, an asset acquired in exchange for the issuance of fully vested, nonforfeitable
equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once the equity
instrument is granted for accounting purposes. Accordingly, the Company records the fair value of nonforfeitable equity instruments
issued for future consulting services as prepaid consulting fees in its condensed consolidated balance sheets.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recorded stock-based compensation related to equity instruments
granted to employees, directors and consultants as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For The Three</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Months Ended</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31, 2013</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For The Three</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Months Ended</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31, 2012</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 76%"><font style="font-size: 8pt">Employees - selling, general and administrative</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">86,003</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">2,590</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Employees - research and development</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">67,131</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">41,546</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Directors - selling, general and administrative</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">202,792</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">74,368</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Consultants - selling, general and administrative</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">117,389</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Consultants - research and development</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">(62,600</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt; padding-left: 9pt"><font style="font-size: 8pt">Total</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">410,715</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">118,504</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Basic and Diluted Loss per Common Share</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic net loss per common share is computed by dividing net loss
attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period.
Diluted net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted
average number of common and common equivalent shares, such as stock options and warrants outstanding during the period.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic and diluted net loss applicable to common stock per share is
computed using the weighted average number of shares of common stock outstanding during the period. Common stock equivalents (using
the treasury stock or, “if converted” method) from convertible notes, preferred stock, stock options, unvested restricted
stock units (“RSUs”) and warrants were 1,854,354 and 2,113,830 at March 31, 2013 and 2012, respectively, and are excluded
from the calculation of diluted net loss per share for all periods presented because the effect is anti-dilutive.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table shows the computation of basic and diluted loss
per share of common stock for the three months ended March 31, 2013 and 2012:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For the three </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>months ended</b></p></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For the three </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>months ended</b></p></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 76%; padding-bottom: 3pt"><font style="font-size: 8pt">Numerator – Net loss</font></td>
<td style="width: 1%; padding-bottom: 3pt"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(1,465,481</font></td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="width: 1%; padding-bottom: 3pt"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(1,379,088</font></td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Denominator – weighted average number of shares</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">  of common stock outstanding, basic and diluted</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">7,788,236</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">1,063,278</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt"><b>Loss per share, basic and diluted</b></font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(0.19</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(1.30</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Use of Estimates</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The preparation of financial statements in conformity with GAAP requires
management to make estimates and judgments that affect the reported amounts of assets, liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting
periods. Significant estimates made by management are, among others, the valuation of contributed services, deferred taxes and
stock-based compensation issued to employees and non-employees. Actual results could differ from those estimates.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Reclassifications</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Certain prior period items and amounts have been reclassified to
conform to the classifications used to prepare the 2013 condensed consolidated financial statements. These reclassifications had
no material impact on the Company’s financial position, results of operations, or cash flows as previously reported.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Recently Adopted Accounting Pronouncements</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In December 2011, the FASB issued Accounting Standards Update (“ASU”)
2011-11, “Disclosures about Offsetting Assets and Liabilities.” This pronouncement was issued to enhance disclosure
requirements surrounding the nature of an entity’s right to offset and related arrangements associated with its financial
instruments and derivative instruments. This new guidance requires companies to disclose both gross and net information about instruments
and transactions eligible for offset in the statement of financial position and instruments and transactions subject to master
netting arrangements. This pronouncement is effective for reporting periods beginning on or after January 1, 2013. The adoption
of ASU 2011-11 did not have a material impact on our condensed consolidated financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In January 2013, the FASB issued ASU 2013-01, “Clarifying
the Scope of Disclosures about Offsetting Assets and Liabilities.” This pronouncement was issued to address implementation
issues about the scope of ASU 2011-11 and to clarify the scope of the offsetting disclosures and address any unintended consequences.
This pronouncement is effective for reporting periods beginning on or after January 1, 2013. The adoption of ASU 2013-01 did
not have a material impact on our condensed consolidated financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Short-term restricted investment at March 31, 2013 consists of a
certificate of deposit, which is classified as held-to-maturity. At March 31, 2013, the fair value of this investment approximated
its cost basis.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At March 31, 2013, the certificate of deposit
of $50,000 was classified as a current asset. The certificate of deposit is required as collateral under the Company’s corporate
credit card agreement and automatically renews every twelve months.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Accounts payable and accrued expenses consisted of the following:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>March 31,</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>December 31,</b></font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 76%"><font style="font-size: 8pt">Accounts payable</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">503,147</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">286,686</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Accrued offering costs</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">185,337</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Deferred rent</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">1,734</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">2,477</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Other accrued expenses</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">21,440</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Stock-based compensation accrual</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">195,914</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">139,444</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Total accounts payable and accrued expenses</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">700,795</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">635,384</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">There are 26,667 and 20,000 shares of our common stock and 11,429
and 0 shares of common stock from unissued stock options underlying the stock-based compensation accrual at March 31, 2013 and
December 31, 2012, respectively.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="margin: 0pt; font: 8pt Times New Roman, Times, Serif"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Common Stock</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with the Public Offering, after
the effectiveness of the Registration Statement on February 7, 2013, the Company effected a one-for-five reverse stock split of
its common stock and on February 8, 2013, the Company's common stock began trading on The NASDAQ Capital Market on a split-adjusted
basis.  All information included in this Quarterly Report has been adjusted to reflect the effect of the one-for-five
reverse stock split.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2013, the Company issued 219 shares
of common stock at a price of $4.00 per share. The shares of common stock were issued to net settle total common stock options
to purchase 1,030 shares of common stock pursuant to a cashless exercise provision.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During February and March 2013, the Company
made payments totaling $192 in connection with cancelled, fractional share amounts of common stock (35 common stock share equivalents)
in connection with the reverse stock split effected February 7, 2013.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 13, 2013, the Company closed the
underwritten Public Offering of 1,840,000 shares of its common stock at a per share price to the public of $5.25, and received
net proceeds of $8,140,435 after deducting underwriter fees and commissions and other offering expenses.  The underwriters
also exercised their option to purchase an additional 276,000 shares of common stock from the Company at $5.25 per share to cover
over-allotments on March 14, 2013.  Net cash proceeds from the exercise of the over-allotment option were $1,316,116.  
On February 7, 2013, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with MDB Capital
Group, LLC.  As contemplated by the Underwriting Agreement, at the closing of the Public Offering and the over-allotment
exercise, the underwriters received warrants (the “Warrants”) to purchase an aggregate of 179,860 shares, or 8.5% of
the number of shares sold in the offering (including 8.5% of shares sold pursuant to their over-allotment option).  The
Warrants are exercisable at $5.25 per share (100% of the price of the common stock sold in the offering), commencing on the effective
date of the offering and expiring five years from the effective date of the offering.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Preferred Stock</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At March 31, 2013, the Company had 5,000,000
shares of preferred stock, $0.001 par value, authorized and no shares of preferred stock issued and outstanding.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.75in"><b>Restricted Stock Units (“RSUs”)</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">RSU awards are granted subject to certain restrictions,
including performance based conditions. The grant-date fair value of the RSUs, which has been determined based upon the market
value of the Company’s shares on the grant date, is expensed over the vesting period. Unvested portions of RSUs issued to
consultants are remeasured on an interim basis until vesting criteria is met. On July 18, 2012, a consultant was issued RSUs (40,000
shares) valued at $130,000, and as of March 31, 2013, the remeasured fair value of those RSUs was $236,000.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">A summary of the Company’s RSU activity and related information
for the three months ended March 31, 2013 is as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; border-collapse: collapse; font: 8pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Number of RSUs</font></td>
<td colspan="2" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Weighted Average Grant Date Fair Value</font></td>
<td colspan="2" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Aggregate Intrinsic Value</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">RSUs outstanding - January 1, 2013</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                      200,000 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="color: black"> $ </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           3.25 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">RSUs granted</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                                -   </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">RSUs vested</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                      (40,000)</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           3.25 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black"> $           210,000 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">RSUs cancelled</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">                                -   </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">               -   </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Balance at March 31, 2013</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 2.25pt double; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">                      160,000 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="color: black"> $ </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           3.25 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black"> $           944,000 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
</table>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 8pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><tr style="vertical-align: top; font: 8pt Times New Roman, Times, Serif">
<td style="width: 0; font: 8pt Times New Roman, Times, Serif"></td><td style="width: 0.75in; font: 8pt Times New Roman, Times, Serif"></td><td style="font: 8pt Times New Roman, Times, Serif"></td></tr></table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of March 31, 2013, the total unrecognized
compensation expense related to unvested RSUs was approximately $397,000 (including recognized and unrecognized expenses of the
remeasured fair value of the consultant RSUs) which are expected to be recognized over a weighted-average period of 1.65 years,
based on estimated vesting schedules. During February 2013, 40,000 RSUs vested, and the common stock underlying these RSUs will
be issued in May 2013. The stock-based compensation for RSU’s was $(5,075) during the three months ended March 31, 2013.</p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 8pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><tr style="vertical-align: top; font: 8pt Times New Roman, Times, Serif">
<td style="width: 0; font: 8pt Times New Roman, Times, Serif"></td><td style="width: 0.75in; font: 8pt Times New Roman, Times, Serif"></td><td style="font: 8pt Times New Roman, Times, Serif"></td></tr></table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.75in"><b>Stock Option Plan </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 17, 2007, the Company’s
Board of Directors and stockholders adopted the Company’s 2007 Incentive Stock and Awards Plan, which was subsequently amended
on November 5, 2008, February 26, 2012 and July 18, 2012 (as amended, the “Plan”). As of March 31, 2013, the Plan provides
for the issuance of a maximum of an aggregate of 2,400,000 shares of the Company’s common stock.  The purpose of
the Plan is to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services
are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in the Company’s
development and financial success. Under the Plan, the Company is authorized to issue incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code, non-qualified stock options and restricted stock. The Plan is administered by the
Compensation Committee of the Company’s Board of Directors.  </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">A summary of the Plan activity for the three months ended March
31, 2013 is as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 8pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">Number of shares</font></td>
<td colspan="2" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Weighted Avg. Exercise Price</font></td>
<td style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Weighted Avg. Remaining Contractual Life (In Years)</font></td>
<td colspan="2" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Aggregate Intrinsic Value</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Options outstanding - January 1, 2013</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                      905,806 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black"> $ </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           5.26 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Options granted</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                                -   </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">               -   </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Options exercised</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                        (1,030)</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           4.00 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Options expired</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">                      (15,250)</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">         74.75 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Options outstanding - March 31, 2013</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 2.25pt double; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">                      889,526 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black"> $ </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           4.07 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">4.60</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">1,916,935</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Options exercisable </font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 2.25pt double; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">                      606,099 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black"> $ </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           4.12 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">5.24</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">1,332,648</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Options vested and expected to vest </font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 2.25pt double; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">                      861,183 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black"> $ </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           4.07 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">4.64</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">1,858,506</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 27pt"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The aggregate intrinsic value in the table
above represents the total pre-tax amount of the proceeds, net of exercise price, which would have been received by option holders
if all option holders had exercised and immediately sold all options with an exercise price lower than the market price on March
28, 2013, based on the closing price of the Company’s common stock of $5.90 on that date.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company did not grant any options during
the three months ended March 31, 2013.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of March 31, 2013, there was approximately
$940,000 of total unrecognized compensation expense related to unvested stock options under the Plan. That expense is expected
to be recognized over the weighted-average remaining vesting period of 0.84 years.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective April 1, 2012, the Company entered
into an advisory agreement with director Dr. Robert J. Kammer (the “Advisory Agreement”) pursuant to which Dr. Kammer
provides certain services to the Company in addition to his services as a director, including, but not limited to, providing management
and advice regarding the operations of the Company’s clinical trials and assistance in the identification of new drug delivery
technologies. As part of Dr. Kammer’s compensation under the Advisory Agreement, the Company granted to Dr. Kammer on April
1, 2012 an option to purchase up to 60,000 shares of the Company’s common stock at an exercise price of $4.50 per share under
the Plan.  The option terminates on March 31, 2017 and vests over a two year period, with 15,000 options vested immediately
upon issuance and an additional 1,875 options vesting monthly for the next twenty four months thereafter. In accordance with accounting
guidance for stock-based compensation to consultants, the unvested portion of the option will be remeasured on an interim basis
until the termination of the Advisory Agreement. The Advisory Agreement will terminate on the earlier of the completion of the
services or the second anniversary of the date of the agreement. As of March 31, 2013, the remeasured fair value of the unvested
portion of the stock option, based on the Black-Scholes-Merton pricing model, was $143,409.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On January 13, 2013, the Company entered into
a statement of work agreement with a clinical development consultant (the “SOW Agreement”) and as part of the compensation
in the SOW Agreement, the Company agreed to issue an option to purchase up to 11,429 shares of the Company’s common stock
at an exercise price of $8.75 per share.  The option will terminate on January 13, 2017 and vest over an eighteen month period
beginning on March 15, 2014, with approximately 635 options vesting monthly for the eighteen months. As of March 31, 2013, this
stock option had not yet been issued. However, the Company has accounted for an expense based on the fair value of the proposed
option value and the applicable vesting schedule according to the option grant criteria defined in the SOW Agreement. In accordance
with accounting guidance for share-based compensation to consultants, the unvested portion of options issued to consultants will
be revalued on an interim basis until the termination of the consulting agreement and all of the options have been fully vested. 
The remeasured fair value of the unvested portion of the proposed stock option, based on the Black-Scholes-Merton option pricing
model, was $56,012.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of each option award is estimated
on the date of grant using the Black-Scholes-Merton option pricing model. Expected volatilities are based on historical volatility
of the Company’s common stock and other factors. The expected term of options granted was determined in accordance with the
“simplified approach” as the Company has limited historical data on employee exercises and post-vesting employment
termination behavior. The expected risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the
expected term of the option in effect at the time of the grant. The financial statement effect of forfeitures is estimated at the
time of grant and revised, if necessary, if the actual effect differs from those estimates. For option grants to employees and
directors, the Company assigns a forfeiture factor of 10%. These factors could change in the future, affecting the determination
of stock-based compensation expense in future periods. Utilizing these assumptions, the fair value is determined at the date of
grant.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The table below illustrates the fair value
per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing the grant
issued to the consultant:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 8pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" colspan="2" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black"><b>Three Months Ended March 31, 2013</b></font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="width: 65%; padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Weighted-average fair value of options granted</font></td>
<td nowrap="nowrap" style="width: 10%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black"> $ </font></td>
<td nowrap="nowrap" style="width: 25%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">6.14</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Expected terms (in years)</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">4</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Expected volatility</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">304% - 372%</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Risk-free interest rate</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">0.35%-0.65%</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Dividend yield</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">-</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.75in"><b> </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.75in">The following table summarizes
information about stock options outstanding and exercisable at March 31, 2013:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.75in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 8pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" colspan="4" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Options Outstanding</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" colspan="3" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Options Exercisable</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Weighted </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Average</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Weighted </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Weighted </font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Remaining </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Average</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Average</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Number </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Contractual </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Exercise</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Number</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Exercise</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">Range of Exercise Prices</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Outstanding</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Life in Years</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Price</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Exercisable</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Price</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$2.40-3.20</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">         250,000 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                6.32 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           2.80 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           225,000 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           2.76 </font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$3.60 - $4.50</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">         624,643 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                3.88 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           4.07 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           372,218 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           4.25 </font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$10.75</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">             7,603 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                4.71 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">10.75</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">               1,901 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">10.75</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$28.00</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">             2,000 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                5.65 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">28.00</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">               1,700 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">28.00</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$42.80</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">             5,030 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                7.49 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">42.80</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">               5,030 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">42.80</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$80.00</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">                250 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                4.47 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">80.00</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">                  250 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">44.56</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt double; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">         889,526 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                4.60 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           4.07 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1.5pt double; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">           606,099 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           4.12 </font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.75in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.75in">The stock-based compensation for
stock options was $340,230 during the three months ended March 31, 2013.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.75in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify; text-indent: -0.75in"><b>Warrants</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">From time to time, the Company issues warrants
to purchase shares of the Company’s common stock to investors, note holders, underwriters and to non-employees for services
rendered or to be rendered in the future.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">In February 2013, the Company issued 30,000 common stock purchase
warrants to a consultant with an exercise price of $5.25 per share. The warrants expire three years following the issuance date,
and vest as follows: 10,000 shares vested immediately upon execution of the consulting agreement, and the remaining shares will
vest evenly (4,000 shares) on each of the five monthly periods following the date of the consulting agreement provided the consultant
continues to provide services to the Company as of the applicable vesting date.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">A summary of the activity of the warrants for the three months ended
March 31, 2013 is as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 8pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Number of Shares Subject to Warrants Outstanding</font></td>
<td colspan="2" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Weighted Avg. Exercise Price</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Warrants outstanding - January 1, 2013</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">556,872</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">7.66</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Granted</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">209,860</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">5.25</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Exercised</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">-</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Expired</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">-</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">-</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Warrants outstanding and exercisable - March 31, 2013</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 2.25pt double; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">766,732</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">7.00</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Weighted average remaining contractual life of the outstanding warrants in years - March 31, 2013</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 2.25pt double; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">2.75</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of each warrant is estimated
on the date of grant using the Black-Scholes-Merton option pricing model. The table below illustrates the fair value per share
determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing the warrants issued:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 8pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" colspan="2" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black"><b>2013</b></font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Weighted-average fair value of warrants granted</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black"> $ </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">4.77</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Expected terms (in years)</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">3-5</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Expected volatility</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">282%-346%</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Risk-free interest rate</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">0.36%-0.92%</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Dividend yield</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">                 -   </font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">A list of the warrants outstanding as of March 31, 2013 is
included in the table below:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 8pt Times New Roman, Times, Serif; border-collapse: collapse">
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" colspan="4" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Warrants Outstanding</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" colspan="3" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Warrants Exercisable</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Warrants </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Exercise </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Warrants</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Expiration</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">Warrant Series</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Issue Date</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Outstanding</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Price</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Exercisable</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="color: black">Date</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Pipe Investors</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">5/12/2008</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">              5,682 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">176.00</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">               5,682 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">5/12/2013</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">DermaStar </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">4/25/2012</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">            48,262 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">5.93</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">             48,262 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">4/25/2015</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">April PPM</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">4/25/2012</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">          502,928 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">5.93</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           502,928 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">4/25/2015</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">Underwriter Warrants</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">2/7/2013</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">          179,860 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">5.25</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           179,860 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">2/7/2018</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">IR Consultant</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">2/28/2013</font></td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">            30,000 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">5.25</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 1pt solid; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">             14,000 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: right; font: 8pt Times New Roman, Times, Serif"><font style="color: black">2/28/2016</font></td></tr>
<tr style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif">
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 2.25pt double; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">          766,732 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="color: black">$</font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"><font style="color: black">           7.00 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="border-bottom: windowtext 2.25pt double; font: 8pt Times New Roman, Times, Serif; padding-right: 5.4pt; padding-left: 5.4pt"><font style="color: black">           750,732 </font></td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td>
<td nowrap="nowrap" style="padding-right: 5.4pt; padding-left: 5.4pt; font: 8pt Times New Roman, Times, Serif"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">The stock-based compensation for warrants was $75,560 during the
three months ended March 31, 2013. </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Commitments</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company leases its office facilities under a noncancelable operating
lease, which expires on February 28, 2014, with a monthly amount due of $2,972 for the first 12 months beginning March 1, 2012,
and $3,715 due monthly for the next 12 months.  For the remaining fiscal year 2013, the Company’s lease commitment
is approximately $33,435.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Indemnities and Guarantees</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In addition to the indemnification provisions contained in the Company’s
charter documents, the Company generally enters into separate indemnification agreements with the Company’s directors and
officers. These agreements require the Company, among other things, to indemnify the director or officer against specified expenses
and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by the individual in connection with any
action, suit or proceeding arising out of the individual’s status or service as the Company’s director or officer,
other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest, and to
advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which the
individual may be entitled to indemnification by the Company. The Company also indemnifies its lessor in connection with its facility
lease for certain claims arising from the use of the facility. These guarantees and indemnities do not provide for any limitation
of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated
nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees
in the accompanying condensed consolidated balance sheets.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>PCCA License Agreement</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">PCCA has granted to the Company and its affiliates certain exclusive
rights under PCCA’s proprietary formulations, other technologies and data, and the Company has agreed to pay to PCCA certain
royalties on net sales relating to the sale of certain future products, which royalties range from 4.5% to 9% for each product,
subject to certain minimum royalty payments. PCCA may terminate the PCCA License Agreement if the Company fails to commence efforts
to research and develop future products within certain time periods, as set forth in the PCCA License Agreement.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>PCCA Strategic Alliance Agreement</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 18, 2013, we entered into a Strategic Alliance Agreement
(the “Agreement) with PCCA. Under the Agreement, PCCA has agreed that during the term of the Agreement, it will not introduce
any of PCCA’s members or customers meeting certain criteria (the “Member/Customers”) to any third party whereby
such third party licenses or otherwise acquires the intellectual property rights of such Member/Customer, without first presenting
such an opportunity to the Company.  PCCA may, but is not required to, present such opportunities to the Company, use reasonable
efforts to facilitate an introductory meeting between the Member/Customer and the Company, and to further provide certain key technical
assistance to a potential development project associated with the Member/Customer’s intellectual property rights. In the
event the Company and a Member/Customer introduced to the Company by PCCA enter into a commercial agreement for the license or
acquisition of the intellectual property rights owned by the Member/Customer, PCCA will be entitled to receive certain cash
fees up to an aggregate of $100,000, as well as a commission based on net sales, if any, generated by the Company as a result of
the acquired intellectual property rights. The Agreement has a term of one year and is automatically extended for successive one
year periods unless either party gives the other written notice of non-renewal.</p>
<p style="margin: 0pt; font: 8pt Times New Roman, Times, Serif"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has performed an evaluation of
events occurring subsequent to March 31, 2013 through the filing date of this Quarterly Report. Based on our evaluation, nothing
other than the events described below need to be disclosed.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In April 2013, the Board approved grants of
options to purchase 120,000 shares of common stock to employees of the Company under the Plan, effective May 1, 2013. The exercise
price of the options is $6.00 per share and the options vest on a quarterly basis over three years following the date of the grants
provided the employees continue to be employed by the Company as of the applicable vesting date.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In April 2013 the Company entered into a lease
agreement for 3,874 square feet of office space from May 1, 2013 to September 30, 2016, effective May 1, 2013. Monthly rent begins
on May 1, 2013 in the amount of $10,406, with a 3% increase in the base rent amount on an annual basis. The lease agreement allows
for the monthly rent amount to be abated for five months at various times during the lease agreement. The total lease obligation
is approximately $387,900.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In April 2013, the Board approved a grant of
options to purchase 51,675 shares of common stock under the Plan to a new employee of the Company, effective on April 22, 2013,
the date of commencement of employment. The exercise price of the options is $9.00 per share. One-third of the options vest on
April 22, 2014 and the remaining options vest on a quarterly basis over the following two years, provided the employee continues
to be employed by the Company as of the applicable vesting date.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On May 2, 2013, the Board of Directors approved
the amendment and restatement of the Company’s 2007 Stock Incentive and Awards Plan (the “Amended and Restated Plan”).
The Amended and Restated Plan provides for (i) the issuance of restricted stock units (in addition to the previously authorized
options and restricted stock) and (ii) incorporates the prior three stockholder-approved amendments to the Plan. Furthermore, on
May 2, 2013 the Board of Directors approved an amendment of the Amendment and Restated Plan (the “Proposed Amendment”)
to increase the number of shares issuable under the Amended and Restated Plan from 2,400,000 shares to 5,000,000 shares and the
maximum number of restricted stock units and shares of restricted stock that may be granted to an individual in a calendar year
from 600,000 shares to 1,750,000 shares. The Proposed Amendment must be approved by the Company’s stockholders. The Company
expects to present the Proposed Amendment as a proposal at the Company’s 2013 Annual Meeting of Stockholders.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective upon approval of the Proposed Amendment
by the Company’s stockholders, Mr. Baum has agreed to cancel 120,000 unvested restricted stock units granted to him in July
2012.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On May 2, 2013, the Company entered into an
amended and restated employment agreement (the “Agreement”) with Mr. Baum with respect to his employment as Chief Executive
Officer. The Agreement has an initial term of three years and will automatically renew thereafter for consecutive one year terms
unless earlier terminated by either party. The Agreement provides for an initial annual base salary of $329,000 and a target annual
bonus incentive under the Company’s Management Incentive Plan (“MIP”) of 45% of his annual base salary. In connection
with the Agreement, Mr. Baum was granted a performance-based restricted stock unit award (the “Performance Equity Award”)
comprised of up to 1,050,000 performance stock units. These performance stock units will only vest if the Company achieves and
maintains certain stock price targets during the three year period following the grant date and are subject to Mr. Baum’s
employment with the Company on the third anniversary of the grant date (other than as described further below). The earning and
issuance of any shares under the Performance Equity Award that would exceed the number of shares available for grant and/or the
applicable annual per person grant limit under the Amended and Restated Plan are subject to approval by the Company’s stockholders
of the Plan Amendment. The Agreement contains restrictions on Mr. Baum’s ability to sell shares received pursuant to any
grant made to him under the Agreement during the term of the Agreement.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In the event the Company terminates Mr. Baum’s
employment without Cause (as defined in the Agreement) or Mr. Baum terminates his employment for Good Reason (as defined in the
Agreement) (a termination without Cause or for Good Reason a “Qualifying Termination”), Mr. Baum will be entitled to
(i) accrued and unpaid base salary through the termination date; (ii) a prorated MIP bonus payment for the year in which the termination
occurs, (iii) a severance payment equal to the sum of (A) his annual base salary plus (B) one times his actual MIP bonus payment
in the two prior years; and (iv) continued group health plan coverage through COBRA for 18 months. In the event of a Qualifying
Termination, the Performance Equity Award for which the relevant stock price vesting targets have been satisfied at the time of
such Qualifying Termination shall vest immediately. In addition, any Performance Equity Awards for which the relevant stock price
vesting targets are satisfied within 12 months following the Qualifying Termination will vest on the date of the satisfaction of
such vesting criteria. With respect to the Performance Equity Award, in the event of a Qualifying Termination after the first anniversary
and prior to the third anniversary of the grant date and within one year of a change of control, all performance stock units subject
to the Performance Equity Award that would have vested prior to such date based on the achievement of the associated Company stock
price targets will vest and all performance stock units subject to the Performance Equity Award with an associated stock price
target at or below the per share consideration in the Change of Control transaction shall vest in full.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Furthermore, the Agreement provides for the
issuance of 180,000 stock options and 200,000 restricted stock units. The stock options vest on a quarterly basis over three years
and have an exercise price of $8.99 per share and the restricted stock units vest on the third anniversary of the agreement, in
each case provided that Mr. Baum is employed with the Company on the applicable vesting date. Mr. Baum will also be eligible for
an annual long-term incentive grants at the time grants are generally made to other senior executives.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="margin: 0pt; font: 8pt Times New Roman, Times, Serif"></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Imprimis Pharmaceuticals, Inc. (“Imprimis”,
the “Company”, “we”, “us”, or “our”) is a specialty pharmaceutical company focused
on the commercial development of compounded drug formulations. Imprimis expects to use its proprietary Accudel™ drug delivery
technologies, proprietary drug formulations, and its exclusive relationship with Professional Compounding Centers of America, Inc.
(“PCCA”), to identify pharmaceutical development opportunities where there are significant unmet medical needs.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s most near term drug
candidate, Impracor™, utilizes its patented Accudel topical cream formulation to enable highly targeted site-specific treatment.
Impracor, which is a Phase 3 clinical trial pain product candidate, delivers the active drug (API), ketoprofen, a non-steroidal
anti-inflammatory drug (NSAID), through the skin directly into the underlying tissues where the drug exerts its localized anti-inflammatory
and analgesic effects.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 28, 2012, the Company changed
its name from Transdel Pharmaceuticals, Inc. to Imprimis Pharmaceuticals, Inc. All prior references to Transdel Pharmaceuticals,
Inc. have been changed to Imprimis Pharmaceuticals, Inc. to reflect the change. On February 28, 2012, the Company effected a one-for-eight
reverse stock split and on February 7, 2013, the Company effected a one-for-five reverse stock split. All share and per share amounts
and calculations in this report reflect the effects of these reverse stock splits.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Imprimis has prepared the accompanying
unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United
States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2013. For further information, refer to the Company’s audited consolidated
financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2012.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 17, 2007, Imprimis
entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) by and among Imprimis, Transdel
Pharmaceuticals Holdings, Inc., a privately held Nevada corporation (“Transdel Holdings”), and Trans-Pharma Acquisition
Corp., a newly formed, wholly-owned Delaware subsidiary of Imprimis (“Acquisition Sub”). Upon closing of the merger
transaction contemplated under the Merger Agreement (the “Merger”), Acquisition Sub merged with and into Transdel Holdings,
and Transdel Holdings, as the surviving corporation, became a wholly-owned subsidiary of Imprimis. As a result of the Merger, the
former owners of Transdel Holdings became the controlling stockholders of Imprimis. Accordingly, the merger of Transdel Holdings
and Imprimis is a reverse merger that has been accounted for as a recapitalization of Transdel Holdings.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective on September 17, 2007,
and for all reporting periods thereafter, Imprimis’ operating activities, including any prior comparative period, include
only those of Transdel Holdings. All references to share and per share amounts in the accompanying consolidated financial statements
and footnotes have been restated to reflect the aforementioned share exchange. All significant intercompany accounts and transactions
have been eliminated in consolidation.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On June 20, 2011, Transdel Holdings was
merged with Imprimis Pharmaceuticals, Inc., at which time Transdel Holdings ceased as a corporation, and Imprimis Pharmaceuticals,
Inc. remains as the sole surviving corporation.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is a development stage company
as defined under Financial Accounting Standards Board (“FASB”) guidance. All losses accumulated since inception have
been considered as part of the Company’s development stage activities.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">These condensed consolidated financial
statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company
is a development stage enterprise and has incurred recurring operating losses, has had negative operating cash flows and has not
recognized any significant revenues since July 24, 1998 (Inception). In addition, the Company has a deficit accumulated during
the development stage of approximately $25.6 million at March 31, 2013, and anticipates incurring further losses through the remainder
of the fiscal year 2013 and beyond. The Company has not yet generated significant sales revenue and has funded its operating losses
to date through debt and equity offerings and borrowings under its line of credit. The Company believes that its existing cash
and cash equivalents will be sufficient to cover its cash flow requirements for at least the next twelve months.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company expenses all costs related
to research and development as they are incurred. Research and development expenses consist of expenses incurred in performing
research and development activities including salaries and benefits, and other overhead expenses, clinical trials, contract services
and outsourced contracts.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company will recognize revenues when
all of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred;
(3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. The Company believes it
will not generate significant revenues until one or more of its drug candidates are approved by the U.S. Food and Drug Administration
(“FDA”) and the Company is able to commercialize one or more of its product candidates. Also, effective sales and marketing
support must be in place for either the drug candidates or any other products the Company may develop in order to generate any
revenues. The FDA approval process is highly uncertain and the Company cannot estimate when it will generate revenues at this time
from sales of its products.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Product Revenues</i></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Determination of criteria (3) and
(4) will be based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and
the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other
adjustments will be provided for in the same period the related sales are recorded. The Company will defer any revenue for which
the product has not been delivered or for which services have not been rendered or are subject to refund until such time that the
Company and the customer jointly determine that the product has been delivered or services have been rendered or no refund will
be required.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>License Revenues</i></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">License arrangements may consist of non-refundable
upfront license fees, data transfer fees, research reimbursement payments, exclusive licensed rights to patented or patent pending
compounds, technology access fees, and various performance or sales milestones. These arrangements can be multiple element arrangements.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Non-refundable, up-front fees that are
not contingent on any future performance by us, and require no consequential continuing involvement on our part, are recognized
as revenue when the license term commences and the licensed data, technology and/or compound is delivered. Such deliverables may
include physical quantities of compounds, design of the compounds and structure-activity relationships, the conceptual framework
and mechanism of action, and rights to the patents or patents pending for such compounds. We defer recognition of non-refundable
upfront fees if we have continuing performance obligations without which the technology, right, product or service conveyed in
conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of our performance under
the other elements of the arrangement. In addition, if we have required continuing involvement through research and development
services that are related to our proprietary know-how and expertise of the delivered technology, or can only be performed by us,
then such up-front fees are deferred and recognized over the period of continuing involvement. Guaranteed minimum annual royalties
are recognized on a straight-line basis over the applicable term.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During three months ended March 31, 2013,
and 2012, the Company recorded $2,500 and $100,000 in revenues, respectively, for non-refundable royalty advances. In January 2013,
we entered into a license agreement with resolutionMD, LLC granting resolutionMD, LLC rights to our Accudel delivery technology
to be used for anti-cellulite formulations. Under the license agreement, the Company will receive $10,000 as a guaranteed minimum
royalty amount for fiscal 2013 and, if applicable, additional royalty payments based on a percent (generally, 5%-7%) of net sales
of any products covered under the license agreement. The license agreement with resolutionMD, LLC, unless terminated earlier, will
be valid for ten years following the first commercial sale of a product that is covered under the license agreement. The Company
does not anticipate that the license agreement with resolutionMD, LLC will generate significant revenues for the fiscal 2013 year.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for income taxes
under the provisions of Accounting Standards Codification (“ASC”) 740, “Income Taxes”, or ASC 740. As of
March 31, 2013, there were no unrecognized tax benefits included in the condensed consolidated balance sheets that would,
if recognized, affect the effective tax rate. The Company’s practice is to recognize interest and/or penalties related to
income tax matters in income tax expense. The Company had no accrual for interest or penalties in its condensed consolidated balance
sheets at March 31, 2013 and December 31, 2012, and has not recognized interest and/or penalties in the consolidated statements
of operations for the periods ended March 31, 2013 and 2012. The Company is subject to taxation in the United States and California.
The Company’s tax years for 2000 and forward are subject to examination by the federal and state tax authorities due to the
carry forward of unutilized net operating losses.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Cash equivalents include short-term,
highly liquid investments with maturities of three months or less at the time of acquisition.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company places its cash with financial
institutions deemed by management to be of high credit quality. The Federal Deposit Insurance Corporation (“FDIC”)
provides basic deposit coverage with limits to $250,000 per owner. At March 31, 2013, the Company had approximately $18.4 million
in cash deposits in excess of FDIC limits.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 25, 2012, the Company filed
with the Securities and Exchange Commission a registration statement on Form S-1 (as amended, the “Registration
Statement”) in connection with an underwritten public offering of its common stock (the “Public Offering”). At
December 31, 2012, the Company had deferred offering costs of $596,281 for legal, accounting and other expenses directly
related to the Public Offering. The Public Offering closed on February 13, 2013 (see Note 4), and these deferred offering
costs and any other costs directly associated with the Public Offering subsequent to December 31, 2012 were netted against
the cash proceeds to the Company arising from the Public Offering. As a result, there were no deferred offering costs at
March 31, 2013.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Furniture and equipment is stated at
cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of
three to five years.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for rent expense
related to its operating leases by determining total minimum rent payments on the leases over their respective periods and recognizing
the rent expense on a straight-line basis. The difference between the actual amount paid and the amount recorded as rent expense
in each fiscal year is recorded as an adjustment to deferred rent.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Fair value measurements are determined
based on the assumptions that market participants would use in pricing an asset or liability. GAAP establishes a hierarchy for
inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. The established fair value hierarchy prioritizes the use of inputs
used in valuation methodologies into the following three levels:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 3%; text-align: justify; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">·</font></td>
<td style="width: 97%; text-align: justify; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Level 1: Applies to assets or liabilities for which there are quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">·</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Level 2: Applies to assets or liabilities for which there are significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">·</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Level 3: Applies to assets or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.</font></td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As of March 31, 2013 and December 31,
2012, the Company did not have any financial assets or liabilities which are measured on a recurring basis. At March 31, 2013 and
December 31, 2012, the Company’s financial instruments include cash and cash equivalents, a restricted short-term investment,
accounts payable and accrued expenses, accrued Phase 3 expenses and accrued payroll and related liabilities. The carrying amount
of these financial instruments, except for the restricted short-term investment, approximates fair value due to the short-term
maturities of these instruments. The Company’s restricted short-term investment is carried at amortized cost which approximates
fair value.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">All share-based payments to employees,
including grants of stock options to employees, directors and consultants, warrants and restricted stock grants, are recognized
in the condensed consolidated financial statements based upon their fair values.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company's accounting policy for equity
instruments issued to consultants and vendors in exchange for goods and services follows FASB guidance. As such, the value of the
applicable stock-based compensation is periodically remeasured and income or expense is recognized during their vesting terms.
The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which
a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance
is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is primarily recognized
over the term of the consulting agreement. In accordance with FASB guidance, an asset acquired in exchange for the issuance of
fully vested, nonforfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance
sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of nonforfeitable
equity instruments issued for future consulting services as prepaid consulting fees in its condensed consolidated balance sheets.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recorded stock-based compensation
related to equity instruments granted to employees, directors and consultants as follows:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; padding-bottom: 1.85pt">
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For The Three</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Months Ended</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31, 2013</b></p></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For The Three</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Months Ended</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31, 2012</b></p></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 76%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Employees - selling, general and administrative</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">86,003</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2,590</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Employees - research and development</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">67,131</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">41,546</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Directors - selling, general and administrative</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">202,792</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">74,368</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Consultants - selling, general and administrative</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">117,389</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Consultants - research and development</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(62,600</font></td>
<td nowrap="nowrap" style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 45pt; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Total</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">410,715</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">118,504</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">stockholders for the period by the weighted
average number of common and common equivalent shares, such as stock options and warrants outstanding during the period.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic and diluted net loss applicable
to common stock per share is computed using the weighted average number of shares of common stock outstanding during the period.
Common stock equivalents (using the treasury stock or, “if converted” method) from convertible notes, preferred stock,
stock options, unvested restricted stock units (“RSUs”) and warrants were 1,854,354 and 2,113,830 at March 31,
2013 and 2012, respectively, and are excluded from the calculation of diluted net loss per share for all periods presented because
the effect is anti-dilutive.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table shows the computation
of basic and diluted loss per share of common stock for the three months ended March 31, 2013 and 2012:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2">
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For the three</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>months ended</b></p></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2">
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For the three</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>months ended</b></p></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>March 31, 2013</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>March 31, 2012</b></font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 76%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Numerator – Net loss</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(1,465,481</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(1,379,088</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Denominator – weighted average number of shares</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">  of common stock outstanding, basic and diluted</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">7,788,236</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">1,063,278</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="font-weight: bold; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif"><b>Loss per share, basic and diluted</b></font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(0.19</font></td>
<td nowrap="nowrap" style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(1.30</font></td>
<td nowrap="nowrap" style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The preparation of financial statements
in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and
expenses during the reporting periods. Significant estimates made by management are, among others, the valuation of contributed
services, deferred taxes and stock-based compensation issued to employees and non-employees. Actual results could differ from those
estimates.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Certain prior period items and amounts
have been reclassified to conform to the classifications used to prepare the 2013 condensed consolidated financial statements.
These reclassifications had no material impact on the Company’s financial position, results of operations, or cash flows
as previously reported.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In December 2011, the FASB issued Accounting
Standards Update (“ASU”) 2011-11, “Disclosures about Offsetting Assets and Liabilities.” This pronouncement
was issued to enhance disclosure requirements surrounding the nature of an entity’s right to offset and related arrangements
associated with its financial instruments and derivative instruments. This new guidance requires companies to disclose both gross
and net information about instruments and transactions eligible for offset in the statement of financial position and instruments
and transactions subject to master netting arrangements. This pronouncement is effective for reporting periods beginning on or
after January 1, 2013. The adoption of ASU 2011-11 did not have a material impact on our condensed consolidated financial
statements.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In January 2013, the FASB issued ASU 2013-01,
“Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” This pronouncement was issued to address
implementation issues about the scope of ASU 2011-11 and to clarify the scope of the offsetting disclosures and address any
unintended consequences. This pronouncement is effective for reporting periods beginning on or after January 1, 2013. The
adoption of ASU 2013-01 did not have a material impact on our condensed consolidated financial statements.</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recorded stock-based compensation
related to equity instruments granted to employees, directors and consultants as follows:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; padding-bottom: 1.85pt">
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For The Three</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Months Ended</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31, 2013</b></p></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For The Three</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Months Ended</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>March 31, 2012</b></p></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 76%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Employees - selling, general and administrative</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">86,003</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2,590</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Employees - research and development</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">67,131</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">41,546</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Directors - selling, general and administrative</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">202,792</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">74,368</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Consultants - selling, general and administrative</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">117,389</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Consultants - research and development</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(62,600</font></td>
<td nowrap="nowrap" style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 45pt; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Total</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">410,715</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">118,504</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table shows the computation
of basic and diluted loss per share of common stock for the three months ended March 31, 2013 and 2012:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2">
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For the three</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>months ended</b></p></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2">
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>For the three</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>months ended</b></p></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>March 31, 2013</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>March 31, 2012</b></font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 76%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Numerator – Net loss</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(1,465,481</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(1,379,088</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Denominator – weighted average number of shares</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">  of common stock outstanding, basic and diluted</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">7,788,236</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">1,063,278</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="font-weight: bold; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif"><b>Loss per share, basic and diluted</b></font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(0.19</font></td>
<td nowrap="nowrap" style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 4.5pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 4.5pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(1.30</font></td>
<td nowrap="nowrap" style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Accounts payable and accrued expenses
consisted of the following:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>March 31,</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>December 31,</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>2013</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>2012</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 76%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Accounts payable</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">503,147</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">286,686</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Accrued offering costs</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">185,337</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Deferred rent</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">1,734</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2,477</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Other accrued expenses</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">21,440</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Stock-based compensation accrual</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">195,914</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">139,444</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Total accounts payable and accrued expenses</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">700,795</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">635,384</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of the Company’s RSU
activity and related information for the three months ended March 31, 2013 is as follows:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Number of RSUs</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Weighted Average Grant Date Fair Value</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Aggregate Intrinsic Value</b></font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">RSUs outstanding - January 1, 2013</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">200,000</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">3.25</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">RSUs granted</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 64%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">RSUs vested</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(40,000</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">3.25</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">210,000</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">RSUs cancelled</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Balance at March 31, 2013</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">160,000</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">3.25</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">944,000</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of the Plan activity for the
three months ended March 31, 2013 is as follows:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Number of shares</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Weighted Avg. Exercise Price</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Weighted Avg. Remaining Contractual Life (In Years)</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Aggregate Intrinsic Value</b></font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Options outstanding - January 1, 2013</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">905,806</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5.26</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Options granted</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Options exercised</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(1,030</font></td>
<td nowrap="nowrap" style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.00</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Options expired</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">(15,250</font></td>
<td nowrap="nowrap" style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">74.75</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 52%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Options outstanding - March 31, 2013</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="width: 9%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">889,526</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.07</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.60</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">1,916,935</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Options exercisable</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">606,099</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.12</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5.24</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">1,332,648</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Options vested and expected to vest</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">861,183</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.07</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.64</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">1,858,506</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of the activity of the warrants
for the three months ended March 31, 2013 is as follows:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Number of Shares Subject to Warrants Outstanding</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td style="font-weight: bold; line-height: 115%; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted Avg.</b></p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Exercise Price</b></p></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 76%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Warrants outstanding - January 1, 2013</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">556,872</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">7.66</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Granted</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">209,860</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5.25</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Exercised</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Expired</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Warrants outstanding and exercisable - March 31, 2013</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">766,732</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">7.00</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Weighted average remaining contractual life of the outstanding warrants in years - March 31, 2013</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2.75</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The table below illustrates the fair
value per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing the
grant issued to the consultant:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Three Months Ended March 31, 2013</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 88%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Weighted-average fair value of options granted</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">6.14</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Expected terms (in years)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Expected volatility</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">304% - 372%</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Risk-free interest rate</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">0.35%-0.65%</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Dividend yield</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of each warrant is estimated
on the date of grant using the Black-Scholes-Merton option pricing model. The table below illustrates the fair value per share
determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing the warrants issued:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>2013</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 88%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Weighted-average fair value of warrants granted</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.77</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Expected terms (in years)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">3-5</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Expected volatility</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">282%-346%</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Risk-free interest rate</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">0.36%-0.92%</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Dividend yield</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">-</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table summarizes information
about stock options outstanding and exercisable at March 31, 2013:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td colspan="2" style="line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="10" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Options Outstanding</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Options Exercisable</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Weighted</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Average</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Weighted</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Weighted</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Remaining</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Average</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Average</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="font-weight: bold; line-height: 115%"> </td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Number</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Contractual</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Exercise</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Number</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Exercise</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Range of Exercise Prices</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Outstanding</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Life in Years</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Price</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Exercisable</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Price</b></font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 23%; text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2.40-3.20</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 12%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">250,000</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 12%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">6.32</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2.80</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 12%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">225,000</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2.76</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">3.60 - $4.50</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">624,643</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">3.88</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.07</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">372,218</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.25</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">10.75</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">7,603</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.71</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">10.75</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">1,901</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">10.75</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">28.00</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2,000</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5.65</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">28.00</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">1,700</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">28.00</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">42.80</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5,030</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">7.49</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">42.80</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5,030</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">42.80</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">80.00</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">250</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.47</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">80.00</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">250</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">44.56</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">889,526</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.60</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.07</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">606,099</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4.12</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td></tr>
</table>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">A list of the warrants outstanding as
of March 31, 2013 is included in the table below:</p>
<p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="8" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Warrants Outstanding</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="4" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Warrants Exercisable</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Warrants</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Exercise</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Warrants</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Expiration</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif"><b>Warrant Series</b></font></td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Issue Date</b></font></td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Outstanding</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Price</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="font-weight: bold; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Exercisable</b></font></td>
<td nowrap="nowrap" style="font-weight: bold; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; font-weight: bold; line-height: 115%; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Date</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 45%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Pipe Investors</font></td>
<td style="width: 1%; text-align: right; line-height: 115%"> </td>
<td style="width: 9%; text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5/12/2008</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5,682</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; text-align: right; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">176.00</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5,682</font></td>
<td nowrap="nowrap" style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5/12/2013</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">DermaStar</font></td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4/25/2012</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">48,262</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5.93</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">48,262</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4/25/2015</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">April PPM</font></td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4/25/2012</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">502,928</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5.93</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">502,928</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">4/25/2015</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">Underwriter Warrants</font></td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2/7/2013</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">179,860</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5.25</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">179,860</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2/7/2018</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">IR Consultant</font></td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2/28/2013</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">30,000</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">5.25</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">14,000</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">2/28/2016</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">766,732</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">7.00</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 8pt Times New Roman, Times, Serif">750,732</font></td>
<td nowrap="nowrap" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
</table>
410715
118504
86003
2590
67131
41546
202792
74368
117389
-62600
25600000
18400000
0
596281
50000
503147
286686
185337
1734
2477
21440
195914
139444
700795
635384
26667
20000
11429
0
2014-02-28
2972
3715
33435
P5Y2M27D
P2Y9M
889526
905806
556872
766732
-15250
-1030
209860
4.07
5.26
7.66
7
74.75
5.25
6.14
4.77
P4Y
P3Y
P5Y
3.04
2.82
3.72
3.46
0.0035
0.0036
0.0065
0.0092
2008-12-05
2012-04-25
2012-04-25
2013-02-07
2013-02-28
606099
2013-05-12
2015-04-25
2015-04-25
2018-02-07
2016-02-28
-40000
3.25
3.25
3.25
861183
4
4.12
4.07
P4Y7M6D
P6Y3M26D
P3Y10M17D
P4Y8M16D
P5Y7M24D
P7Y5M27D
P4Y5M19D
P4Y7M6D
P4Y7M21D
1916935
944000
1332648
1858506
0.00
5000000
0.001
397000
P1Y7M24D
940000
P10M2D
143409
3.2
4.5
10.75
28
42.8
80
250000
624643
7603
2000
5030
250
889526
2.8
4.07
10.75
28
42.8
80
4.07
225000
372218
1901
1700
5030
250
606099
2.76
4.25
10.75
28
42.8
44.56
4.12
200000
160000
766732
5682
48262
502928
179860
30000
7
176
5.93
5.93
5.25
5.25
750732
5682
48262
502928
179860
14000
-5075
2.4
3.6
210000
13098
12548
236000
1854354
2113830