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Q2
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<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 13. SUBSEQUENT EVENTS</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has performed an evaluation of
events occurring subsequent to June 30, 2014 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: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">From July 1, 2014 through the filing
date of this Quarterly Report, the Company issued a total of 2,506 shares of common stock for gross proceeds of $9,619 for
stock option exercises.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>NOTE 11. COMMITMENTS AND CONTINGENCIES</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Capital Lease</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company leases equipment under a
capital lease with an interest rate of 4.25% per annum. At June 30, 2014, future payments under this capital lease are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Years ending December 31,</font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Remainder of 2014</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3,505</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2015</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: 10pt Times New Roman, Times, Serif">7,009</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2016</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: 10pt Times New Roman, Times, Serif">7,009</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total minimum lease payments</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: 10pt Times New Roman, Times, Serif">17,523</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less amount representing interest</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: 10pt Times New Roman, Times, Serif">(927</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Present value of future minimum lease payments</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: 10pt Times New Roman, Times, Serif">16,596</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less current portion</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: 10pt Times New Roman, Times, Serif">(6,428</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
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<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Capital lease obligation, net of current portion</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10,168</font></td>
<td style="line-height: 115%"> </td></tr>
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<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The value of the equipment under capital
lease as of June 30, 2014 was $18,913, with related accumulated depreciation of $3,153.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>Operating Leases</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In June 2014, the Company entered into
a lease agreement for 7,565 square feet of office space from September 1, 2014 to October 31, 2018, effective September 1, 2014.
Monthly rent begins on September 1, 2014 in the amount of $20,426, 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 two months at various times during the lease agreement.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal 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 began 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Once the Company relocates to the new
office space (7,565 square feet), effective September 1, 2014, the Company’s intention is to sublet the 3,874 square feet
of its current offices through its remaining lease term.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In January 2010, PC entered into a lease
agreement for 3,137 square feet of office and laboratory space from January 1, 2010 to December 31, 2015. Monthly rent began on
January 1, 2010 in the amount of $3,594.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>Legal</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In the ordinary course of business,
the Company may face various claims brought by third parties and the Company may, from time to time, make claims or take legal
actions to assert the Company’s rights, including intellectual property rights, contractual disputes and other commercial
disputes. Any of these claims could subject the Company to litigation. Management believes the outcomes of currently pending claims
are not likely to have a material effect on the Company’s condensed consolidated financial position and results of operations.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>Indemnities and Guarantees</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal 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 lessors
in connection with its facility leases for certain claims arising from the use of the facilities. 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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>PCCA License Agreement</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Professional Compounding Centers of America,
or 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: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>PCCA Strategic Alliance Agreement</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 18, 2013, the Company entered into
a Strategic Alliance Agreement with PCCA. Under this 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. This agreement automatically renewed for a
one-year term on February 18, 2014.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Asset Purchase Agreements</b></p>
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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has acquired intellectual property
rights related to certain proprietary innovations from certain inventors (the “Inventors”) through multiple asset purchase
agreements. The asset purchase agreements provide that the Inventors will cooperate with the Company in obtaining patent protection
for the acquired intellectual property and that the Company will use commercially reasonable efforts to research, develop and commercialize
a product based on the acquired intellectual property. In addition, the Company has acquired a right of first refusal on additional
intellectual property and drug development opportunities presented by these Inventors.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In consideration for the acquisition of the
intellectual property rights, the Company is obligated to make payments to the Inventors based on the completion of certain milestones,
generally consisting of: (1) a payment payable within 30 days after the issuance of the first patent in the United States arising
from the acquired intellectual property (if any); (2) a payment payable within 30 days after the Company files the first Investigational
New Drug application (“IND”) with the FDA for the first product arising from the acquired intellectual property (if
any); (3) for certain of the Inventors, a payment payable within 30 days after the Company files the first New Drug application
with the FDA for the first product arising from the acquired intellectual property (if any); and (4) certain royalty payments based
on the net receipts received by the Company in connection with the sale or licensing of any product based on the acquired intellectual
property (if any), after deducting (among other things) the Company’s development costs associated with such product. If,
following five years after the date of the applicable asset purchase agreement, the Company either (a) for certain of the Inventors,
has not filed an IND or, for the remaining Inventors, has not initiated a study where data is derived, or (b) has failed to generate
royalty payments to the Inventors for any product based on the acquired intellectual property, the Inventors may terminate the
applicable asset purchase agreement and request that the Company re-assign the acquired technology to the Inventors.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Novel Drug and Eye Care Northwest Asset
Purchase Agreement – Related Party</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On August 8, 2013, the Company acquired intellectual
property rights related to certain proprietary innovations from the compounding pharmacy operations of Novel Drug Solutions, LLC
(“NDS”) and from Eye Care Northwest, Inc. (together referred to as the “Sellers”) pursuant to an Asset
Purchase Agreement, as amended (the “ECN APA”). As part of this acquisition the Company has acquired intellectual property
assets, including a provisional patent application related to injectable ophthalmological compositions having anti-bacterial and
anti-inflammatory properties for the prevention of post-ophthalmic surgery complications. In addition, under the ECN APA, the Company
has a right of first refusal on any of the Sellers’ additional intellectual property and drug development opportunities.
The ECN APA provides that the Sellers will cooperate with us in obtaining patent protection for the acquired intellectual property,
among other things, and that we will use commercially reasonable efforts to research, develop and commercialize a product based
on the acquired intellectual property.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In consideration for the acquisition, the Company
is obligated to make the following payments to NDS: (1) one payment payable within 30 days after the issuance of the first patent
in the United States arising from the acquired intellectual property (if any); (2) one payment payable within 30 days after the
Company files the first IND with the FDA for the first product arising from the acquired intellectual property (if any); (3) one
payment payable within 30 days after the Company files the first New Drug application with the FDA for the first product; and (4)
certain royalty payments based on the net receipts received by the Company in connection with the sale or licensing of any product
based on the acquired intellectual property (if any), after deducting (among other things) the Company’s development costs
associated with such product. If following five years of the date of the ECN APA the Company either has not filed an IND or has
failed to generate royalty payments to NDS for any product based on the acquired intellectual property, NDS may terminate the ECN
APA and request that the Company re-assign the acquired technology to NDS.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">NDS is owned by the former owners of PC and
other full-time employees of the Company. During the six months ended June 30, 2014 the Company did not make any payments to NDS,
and no amounts are due and payable to NDS at June 30, 2014.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><b>NOTE 9. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Common Stock</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During April 2014, the Company issued 6,868
shares of common stock, valued at $50,000, in connection with the resolution of a contract dispute.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the six months ended June 30, 2014,
the Company issued a total of 121,045 shares of common stock for gross proceeds of $446,610 for stock option exercises.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the six months ended June 30, 2014,
the Company issued 23,265 shares of common stock in connection with the exercise of common stock options to purchase 44,164 shares
of common stock with exercise prices of $3.60 - $4.27 per share pursuant to cashless exercise provisions.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the six months ended June 30, 2014,
the Company issued 6,328 shares of common stock for gross proceeds of $37,493 for warrant exercises.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Preferred Stock</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At June 30, 2014, 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: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><b>Stock Option Plan</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt 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, July 18, 2012 , May 2, 2013 and September 27, 2013 (as amended, the “Plan”).
As of June 30, 2014, the Plan provides for the issuance of a maximum of an aggregate of 5,000,000 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: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">A summary of the Plan activity with respect to options to
purchase common stock for the six months ended June 30, 2014 is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Number of shares</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted Avg. Exercise Price</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted Avg. Remaining Contractual Life</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Aggregate Intrinsic Value</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 42%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options outstanding - January 1, 2014</font></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: 10pt Times New Roman, Times, Serif">1,328,790</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.31</font></td>
<td 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%"> </td>
<td 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: 10%; text-align: right; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">225,886</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.60</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options exercised</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(165,209</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3.69</font></td>
<td 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 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 style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options cancelled/forfeit</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: 10pt Times New Roman, Times, Serif">(75,000</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.30</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options outstanding - June 30, 2014</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,314,467</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.66</font></td>
<td 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: 10pt Times New Roman, Times, Serif">6.41</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,532,926</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options exercisable</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">795,441</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4.99</font></td>
<td 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: 10pt Times New Roman, Times, Serif">4.67</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,046,478</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options vested and expected to vest</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,262,564</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.64</font></td>
<td 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: 10pt Times New Roman, Times, Serif">6.31</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,484,281</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal 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 June 30, 2014, based on the closing price of the Company’s common stock of $6.94 on that date. The intrinsic value of
stock options exercised during the six months ended June 30, 2014 was $644,113.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the six months ended June 30,
2014, the Company granted stock options to certain employees, directors and consultants. The stock options were granted with an
exercise price equal to the current market price of the Company’s common stock, as reported by the applicable quotation system
of securities exchange on which the common stock was then quoted or listed, at the grant date and have contractual terms ranging
from 5 to 10 years. Vesting terms for options granted to employees, directors and consultants typically included one of the following
vesting schedules: 25% or 33% of the shares subject to the option vest and become exercisable on the first anniversary of the grant
date and the remaining 75% or 67%, respectively, of the shares subject to the option vest and become exercisable quarterly in equal
installments thereafter over two or three years, respectively; quarterly vesting over a three year period; annual vesting over
three years; or monthly, quarterly or 100% vesting associated with the provision or completion of services provided under contracts
with consultants. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plan)
and in the event of certain modifications to the option award agreement.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal 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. Prior to April 1, 2013, expected volatilities
were based on historical volatility of the Company’s common stock and other factors. Following April 1, 2013, the expected
volatility is based on the historical volatilities of the common stock of comparable publicly traded companies based on the Company’s
belief that it has significantly changed its business operations and focus, and as a result, it currently has limited relevant
historical data regarding the volatility of its stock price on which to base a meaningful estimate of expected volatility. The
expected term of options granted was determined in accordance with the “simplified approach” as the Company has limited,
relevant, 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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/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 options
granted to employees:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<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; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2014</b></font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.16</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">5.81 - 6.91</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">100 - 102%</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">1.37 - 1.65%</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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 options
granted to consultants:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<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; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2014</b></font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.15</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">2.54 - 10</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">80 - 97%</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">0.10 - 1.64%</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The following table summarizes information about stock options
outstanding and exercisable at June 30, 2014:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="10" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options Outstanding</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options Exercisable</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Average</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Remaining</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Average</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Average</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Number</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Contractual</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercise</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Number</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercise</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Range of Exercise Prices</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Life in Years</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Price</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercisable</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Price</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 40%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$2.40 -$3.20</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">250,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.07</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2.80</font></td>
<td 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: 10pt Times New Roman, Times, Serif">250,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2.80</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$3.60 - $4.51</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">515,107</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4.95</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4.25</font></td>
<td 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: 10pt Times New Roman, Times, Serif">375,359</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4.33</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$5.49 - $7.71</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">249,225</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">9.28</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.67</font></td>
<td 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: 10pt Times New Roman, Times, Serif">35,030</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.02</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$8.06 - $10.75</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">293,335</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">7.73</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8.99</font></td>
<td 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: 10pt Times New Roman, Times, Serif">128,252</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">9.02</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">28.00 - $80.00</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,800</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.63</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">40.86</font></td>
<td 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: 10pt Times New Roman, Times, Serif">6,800</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">40.86</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,314,467</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.41</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.66</font></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: 10pt Times New Roman, Times, Serif">795,441</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4.99</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: -0.75in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As of June 30, 2014, there was approximately
$2,684,000 of total unrecognized compensation expense related to unvested stock options granted under the Plan. That expense is
expected to be recognized over the weighted-average remaining vesting period of 2.48 years. The stock-based compensation for all
stock options was $318,823 and $643,117 during the three and six months ended June 30, 2014, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>Restricted Stock Units</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Restricted stock unit, or RSU, awards
are granted subject to certain vesting requirements and other restrictions, including performance and market based vesting criteria.
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 May 2, 2013, the Board of Directors of the Company amended and restated the Plan to provide for
the issuance of RSUs under the Plan.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During March 2014, the Company terminated
its agreement with a consultant that provided for the grant of 100,000 RSUs that had vesting criteria based on the satisfaction
of certain market-based conditions subject to the consultant’s continued service, among other things. Upon termination of
the agreement, all 100,000 RSUs were forfeited and deemed reconveyed to the Company.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of the Company’s RSU
activity and related information for the six months ended June 30, 2014 is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Number of RSUs</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted Average Grant Date Fair Value</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 58%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">RSUs outstanding - January 1, 2014</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 18%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,389,960</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 18%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3.19</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">RSUs vested</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">RSUs cancelled/forfeited</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: 10pt Times New Roman, Times, Serif">(100,000</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2.88</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Balance at June 30, 2014</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,289,960</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3.22</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">As of June 30, 2014, the total unrecognized
compensation expense related to unvested RSUs was approximately $2,418,000 which is expected to be recognized over a weighted-average
period of 1.80 years, based on estimated vesting schedules. The stock-based compensation for RSU’s during the three months
and six months ended June 30, 2014 was $339,932 and $676,926, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>Warrants</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal 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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">A summary of the activity of the warrants for the six months
ended June 30, 2014 is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Number of Shares Subject to Warrants Outstanding</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted Avg.</font><br />
<font style="font: 10pt Times New Roman, Times, Serif">Exercise Price</font></td>
<td style="text-align: center; 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 style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 58%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants outstanding - January 1, 2014</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 18%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">821,050</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 18%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.94</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercised</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(6,328</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.93</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants outstanding and exercisable - June 30, 2014</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">814,722</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.94</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted average remaining contractual life of the outstanding warrants in years - June 30, 2014</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: 10pt Times New Roman, Times, Serif">1.70</font></td>
<td 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 style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">  </p>
<p style="font: 10pt/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 intrinsic value of warrants exercised during the
six months ended June 30, 2014 was $8,701.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">A list of the warrants outstanding as of June 30, 2014 is
included in the table below:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="9" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants Outstanding</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="5" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants Exercisable</font></td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercise</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Expiration</font></td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrant Series</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Issue Date</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Price</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercisable</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Date</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 40%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">DermaStar</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 11%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4/25/2012</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: 10pt Times New Roman, Times, Serif">48,262</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.93</font></td>
<td 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: 10pt Times New Roman, Times, Serif">48,262</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 11%; text-align: right; line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">April PPM</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">496,600</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.93</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">496,600</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4/25/2015</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Underwriter Warrants</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2/7/2013</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">179,860</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.25</font></td>
<td 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: 10pt Times New Roman, Times, Serif">179,860</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: 10pt Times New Roman, Times, Serif">2/7/2018</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">IR Consultant</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2/28/2013</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: 10pt Times New Roman, Times, Serif">30,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.25</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">30,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2/28/2016</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">IR Consultant</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">7/19/2013</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">60,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8.50</font></td>
<td 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: 10pt Times New Roman, Times, Serif">60,000</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: 10pt Times New Roman, Times, Serif">7/19/2018</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: 10pt Times New Roman, Times, Serif">814,722</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.94</font></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: 10pt Times New Roman, Times, Serif">814,722</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">  </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The stock-based compensation for warrants was $26,649 for
the six months ended June 30, 2014.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>NOTE 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Accounts payable and accrued expenses
consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>June 30, 2014</b></font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2"> </td>
<td 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="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(unaudited)</b></font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2013</b></font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%; line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">750,106</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">261,924</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Other accrued expenses</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">50,000</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total accounts payable and accrued expenses</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">750,106</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">311,924</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 3. RESTRICTED SHORT-TERM INVESTMENTS</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The restricted short-term investments
at June 30, 2014 and December 31, 2013 consist of certificates of deposit, which are classified as held-to-maturity. At June 30,
2014 and December 31, 2013, the restricted short-term investments was recorded at amortized cost which approximates fair value.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">At June 30, 2014 and December 31, 2013,
the certificates of deposit of $150,151 and $50,097, respectively, were classified as a current asset. The certificates of deposit
are required as collateral under the Company’s corporate credit card agreement and additional security for office space
lease, and automatically renew every twelve months.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Basis of Presentation</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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 and six months ended June 30, 2014 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2014. 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, 2013.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The accompanying condensed consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions
have been eliminated in consolidation.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Research and Development</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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, and costs related to clinical
trials, contract services and outsourced contracts.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Revenue Recognition and Deferred
Revenue</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recognizes 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 began generating revenues upon
the acquisition of PC in the second quarter of 2014, which includes sales of certain of our proprietary compounded drug formulations.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Product Revenues</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Determination of criteria (3) and (4)
is based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability
of those amounts. Estimated returns and allowances, and other adjustments are 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 are subject to refund until such
time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>License Revenues</i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt/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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Non-refundable 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 compounded drug preparations is delivered. Such deliverables
may include physical quantities of compounded drug preparations, design of the compounded drug preparations and structure-activity
relationships, the conceptual framework and mechanism of action, and rights to the patents or patents pending for such compounded
drug preparations. We defer recognition of non-refundable 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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the three and six months ended
June 30, 2014 and 2013, the Company recorded $3,331, $4,741 and $2,500, $5,000, respectively, in revenues, related to royalty
payments. In January 2013, the Company entered into a license agreement with ResolutionMD, LLC granting ResolutionMD, LLC rights
to its Accudel delivery technology to be used for anti-cellulite formulations. Under the license agreement, the Company received
$10,000 as a guaranteed minimum royalty amount for the year ended December 31, 2013. The Company is due annual guaranteed minimum
royalty payments and additional royalty payments based on a percent (generally, 5%-7%) of net sales of any products covered under
the license agreement in excess of the guaranteed amounts. The license agreement with ResolutionMD, LLC, unless terminated earlier,
has a term of 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 2014 fiscal year.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Income Taxes</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for income taxes
under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
740, “Income Taxes”, or ASC 740. As of June 30, 2014, 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 June 30, 2014 and December 31, 2013, and has not recognized interest and/or penalties
in the condensed consolidated statements of operations for the periods ended June 30, 2014 and 2013. 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="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Cash and Cash Equivalents</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Concentrations of Credit Risk</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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 up to $250,000 per owner. At June 30, 2014, the Company had approximately $11.8 million
in cash deposits in excess of FDIC limits.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Furniture and Equipment</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Furniture and equipment is stated at
cost less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method
over the estimated useful life of the asset. Leasehold improvements are amortized over the estimated useful life or remaining
lease term, whichever is shorter. Computer software and hardware, and furniture and equipment are depreciated over three to five
years.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Deferred Rent</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Fair Value Measurements</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt 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%"> </td>
<td style="text-align: justify; line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt 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%"> </td>
<td style="text-align: justify; line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt 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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">At June 30, 2014 and December 31, 2013,
the Company did not have any financial assets or liabilities which are measured on a recurring basis. At June 30, 2014 and December
31, 2013, the Company’s financial instruments include cash and cash equivalents, restricted short-term investments, accounts
receivable, accounts payable and accrued expenses, accrued payroll and related liabilities, customer deposits, and capital lease.
The carrying amount of these financial instruments, except for the restricted short-term investment and capital lease, approximates
fair value due to the short-term maturities of these instruments. The Company’s restricted short-term investments are carried
at amortized cost which approximates fair value. Based on borrowing rates currently available to the Company, the carrying value
of the capital lease approximates fair value.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>Stock-Based Compensation</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">All stock-based payments to employees
and consultants, including grants of stock options, warrants, restricted stock units (“RSUs”) and restricted stock,
are recognized in the condensed consolidated financial statements based upon their fair values. The Company uses the Black-Scholes-Merton
option pricing model and Monte Carlo Simulation to estimate the fair value of stock-based awards. The fair value is determined
at the date of 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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 stock-based consulting expenses in its consolidated
balance sheets.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recorded stock-based compensation
(including the amortization of stock-based prepaid consulting fees) related to equity instruments granted to employees, directors
and consultants as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 24%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Employees - selling and marketing</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">16,994</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">30,861</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Employees - 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: 10pt Times New Roman, Times, Serif">561,733</font></td>
<td 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: 10pt Times New Roman, Times, Serif">378,895</font></td>
<td 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: 10pt Times New Roman, Times, Serif">1,105,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">464,898</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td 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: 10pt Times New Roman, Times, Serif">44,619</font></td>
<td 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td 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: 10pt Times New Roman, Times, Serif">111,750</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Directors - 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: 10pt Times New Roman, Times, Serif">42,147</font></td>
<td 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: 10pt Times New Roman, Times, Serif">45,458</font></td>
<td 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: 10pt Times New Roman, Times, Serif">84,293</font></td>
<td 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: 10pt Times New Roman, Times, Serif">248,250</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Consultants - selling and marketing</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: 10pt Times New Roman, Times, Serif">14,730</font></td>
<td 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td 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: 10pt Times New Roman, Times, Serif">30,783</font></td>
<td 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Consultants - 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: 10pt Times New Roman, Times, Serif">18,337</font></td>
<td 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: 10pt Times New Roman, Times, Serif">345,605</font></td>
<td 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: 10pt Times New Roman, Times, Serif">86,839</font></td>
<td 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: 10pt Times New Roman, Times, Serif">505,527</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">4,814</font></td>
<td 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: 10pt Times New Roman, Times, Serif">180,559</font></td>
<td 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: 10pt Times New Roman, Times, Serif">8,916</font></td>
<td 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: 10pt Times New Roman, Times, Serif">117,959</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">658,755</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">995,136</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,346,692</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,448,384</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the six months ended June 30,
2014, the Company issued 6,868 shares of common stock, valued at $50,000 in connection with the resolution of a contract dispute.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>Basic and Diluted Net Loss per Common Share</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal 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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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 3,419,149 and 3,138,004 at June 30, 2014
and 2013, 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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table shows the computation
of basic and diluted net loss per share of common stock for the three and six months ended June 30, 2014 and 2013:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; 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 style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 24%; line-height: 115%"><font style="font: 10pt 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 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2,595,725</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2,218,052</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(4,920,888</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(3,683,533</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Denominator – weighted average number of shares 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: 10pt Times New Roman, Times, Serif">9,109,842</font></td>
<td 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: 10pt Times New Roman, Times, Serif">8,890,668</font></td>
<td 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: 10pt Times New Roman, Times, Serif">9,060,496</font></td>
<td 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: 10pt Times New Roman, Times, Serif">8,342,497</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Net loss per share, basic and diluted</b></font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.28</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.25</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.54</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.44</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Use of Estimates</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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, valuation of deferred taxes,
goodwill and, intangible assets, recoverability of long-lived assets and goodwill, and valuation of stock-based compensation issued
to employees and non-employees. Actual results could differ from those estimates.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recorded stock-based compensation
(including the amortization of stock-based prepaid consulting fees) related to equity instruments granted to employees, directors
and consultants as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 24%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Employees - selling and marketing</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">16,994</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">30,861</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Employees - 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: 10pt Times New Roman, Times, Serif">561,733</font></td>
<td 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: 10pt Times New Roman, Times, Serif">378,895</font></td>
<td 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: 10pt Times New Roman, Times, Serif">1,105,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">464,898</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td 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: 10pt Times New Roman, Times, Serif">44,619</font></td>
<td 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td 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: 10pt Times New Roman, Times, Serif">111,750</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Directors - 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: 10pt Times New Roman, Times, Serif">42,147</font></td>
<td 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: 10pt Times New Roman, Times, Serif">45,458</font></td>
<td 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: 10pt Times New Roman, Times, Serif">84,293</font></td>
<td 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: 10pt Times New Roman, Times, Serif">248,250</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Consultants - selling and marketing</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: 10pt Times New Roman, Times, Serif">14,730</font></td>
<td 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td 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: 10pt Times New Roman, Times, Serif">30,783</font></td>
<td 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Consultants - 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: 10pt Times New Roman, Times, Serif">18,337</font></td>
<td 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: 10pt Times New Roman, Times, Serif">345,605</font></td>
<td 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: 10pt Times New Roman, Times, Serif">86,839</font></td>
<td 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: 10pt Times New Roman, Times, Serif">505,527</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">4,814</font></td>
<td 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: 10pt Times New Roman, Times, Serif">180,559</font></td>
<td 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: 10pt Times New Roman, Times, Serif">8,916</font></td>
<td 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: 10pt Times New Roman, Times, Serif">117,959</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">658,755</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">995,136</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,346,692</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,448,384</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table shows the computation
of basic and diluted net loss per share of common stock for the three and six months ended June 30, 2014 and 2013:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; 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 style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 24%; line-height: 115%"><font style="font: 10pt 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 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2,595,725</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2,218,052</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(4,920,888</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(3,683,533</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Denominator – weighted average number of shares 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: 10pt Times New Roman, Times, Serif">9,109,842</font></td>
<td 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: 10pt Times New Roman, Times, Serif">8,890,668</font></td>
<td 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: 10pt Times New Roman, Times, Serif">9,060,496</font></td>
<td 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: 10pt Times New Roman, Times, Serif">8,342,497</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Net loss per share, basic and diluted</b></font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.28</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.25</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.54</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.44</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Accounts payable and accrued expenses
consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>June 30, 2014</b></font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2"> </td>
<td 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="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(unaudited)</b></font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2013</b></font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%; line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">750,106</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">261,924</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Other accrued expenses</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">50,000</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total accounts payable and accrued expenses</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">750,106</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">311,924</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
311924
750106
50000
261924
750106
0.05
0.07
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">A summary of the Plan activity with respect to options to
purchase common stock for the six months ended June 30, 2014 is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Number of shares</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted Avg. Exercise Price</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted Avg. Remaining Contractual Life</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Aggregate Intrinsic Value</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 42%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options outstanding - January 1, 2014</font></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: 10pt Times New Roman, Times, Serif">1,328,790</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.31</font></td>
<td 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%"> </td>
<td 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: 10%; text-align: right; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">225,886</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.60</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options exercised</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(165,209</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3.69</font></td>
<td 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 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 style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options cancelled/forfeit</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: 10pt Times New Roman, Times, Serif">(75,000</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.30</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options outstanding - June 30, 2014</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,314,467</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.66</font></td>
<td 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: 10pt Times New Roman, Times, Serif">6.41</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,532,926</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options exercisable</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">795,441</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4.99</font></td>
<td 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: 10pt Times New Roman, Times, Serif">4.67</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,046,478</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options vested and expected to vest</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,262,564</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.64</font></td>
<td 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: 10pt Times New Roman, Times, Serif">6.31</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2,484,281</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The table below illustrates the fair
value per share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options
granted to employees:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2014</b></font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted-average fair value of options granted</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.16</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">5.81 - 6.91</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">100 - 102%</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">1.37 - 1.65%</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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 options
granted to consultants:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<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; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>2014</b></font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.15</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">2.54 - 10</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">80 - 97%</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">0.10 - 1.64%</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b></b></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of the Company’s RSU
activity and related information for the six months ended June 30, 2014 is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Number of RSUs</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted Average Grant Date Fair Value</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 58%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">RSUs outstanding - January 1, 2014</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 18%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,389,960</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 18%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3.19</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">RSUs vested</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">RSUs cancelled/forfeited</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: 10pt Times New Roman, Times, Serif">(100,000</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2.88</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Balance at June 30, 2014</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,289,960</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3.22</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b></b></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">A summary of the activity of the warrants for the six months
ended June 30, 2014 is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Number of Shares Subject to Warrants Outstanding</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted Avg.</font><br />
<font style="font: 10pt Times New Roman, Times, Serif">Exercise Price</font></td>
<td style="text-align: center; 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 style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 58%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants outstanding - January 1, 2014</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 18%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">821,050</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 18%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.94</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">(6,328</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.93</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Expired</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants outstanding and exercisable - June 30, 2014</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: 10pt Times New Roman, Times, Serif">814,722</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.94</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted average remaining contractual life of the outstanding warrants in years - June 30, 2014</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: 10pt Times New Roman, Times, Serif">1.70</font></td>
<td 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 style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">A list of the warrants outstanding as of June 30, 2014 is
included in the table below:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="9" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants Outstanding</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="5" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants Exercisable</font></td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercise</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrants</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Expiration</font></td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Warrant Series</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Issue Date</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Price</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercisable</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Date</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 40%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">DermaStar</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 11%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4/25/2012</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: 10pt Times New Roman, Times, Serif">48,262</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.93</font></td>
<td 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: 10pt Times New Roman, Times, Serif">48,262</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 11%; text-align: right; line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">April PPM</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">496,600</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.93</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">496,600</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4/25/2015</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Underwriter Warrants</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2/7/2013</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">179,860</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.25</font></td>
<td 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: 10pt Times New Roman, Times, Serif">179,860</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: 10pt Times New Roman, Times, Serif">2/7/2018</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">IR Consultant</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2/28/2013</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: 10pt Times New Roman, Times, Serif">30,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.25</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">30,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2/28/2016</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">IR Consultant</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">7/19/2013</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">60,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8.50</font></td>
<td 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: 10pt Times New Roman, Times, Serif">60,000</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: 10pt Times New Roman, Times, Serif">7/19/2018</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: 10pt Times New Roman, Times, Serif">814,722</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.94</font></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: 10pt Times New Roman, Times, Serif">814,722</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></p>
0
0
250000
11800000
1314467
250000
515107
249225
293335
6800
1328790
-1314467
121045
-165209
2506
795441
1262564
5.31
5.66
6.60
3.69
6.30
4.99
5.64
P6Y4M28D
P6Y4M28D
P5Y26D
P4Y11M12D
P9Y3M11D
P7Y8M23D
P5Y7M17D
2532926
2046478
2484281
6.15
5.16
P10Y
P2Y6M15D
P5Y9M22D
P6Y10M28D
0.80
1.00
0.97
1.02
0.0010
.0137
0.0164
.0165
0.00
0.00
2.40
3.60
5.49
8.06
28.00
3.20
4.51
7.71
10.75
80.00
5.66
2.80
4.25
6.67
8.99
40.86
795441
250000
375359
35030
128252
6800
4.99
2.80
4.33
6.02
9.02
40.86
48262
496600
179860
30000
60000
814722
5.93
5.93
5.25
5.25
8.50
5.94
48262
496600
179860
30000
60000
814722
0.03
0.03
0.045
0.09
100000
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Intellectual Property</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The costs of acquiring intellectual
property rights to be used in the research and development process, including licensing fees and milestone payments, are charged
to research and development expense as incurred in situations where the Company has not identified an alternative future use for
the acquired rights, and are capitalized in situations where the Company has identified an alternative future use. No costs associated
with acquiring intellectual property rights have been capitalized to date. Costs of maintaining intellectual property rights are
expensed as incurred.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Reclassifications</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/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 2014 condensed consolidated financial statements.
The Company has classified certain expenses as selling and marketing whereas in prior periods certain selling and marketing expenses
were included as an expense line item titled selling, general and administrative in the condensed consolidated statements of operations.
These reclassifications had no material impact on the Company’s financial position, results of operations, or cash flows
as previously reported.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>Recently Adopted Accounting Pronouncements</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In July 2013, the FASB issued ASU No.
2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax
Credit Carryforward Exists.” ASU 2013-11 provides explicit guidance on the financial statement presentation of an unrecognized
tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance is effective
prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, with an option for early
adoption. 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 the Company’s condensed consolidated financial statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In June 2014, the FASB issued ASU No.
2014-10, “Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities”.
The amendments in this update remove the definition of a development stage entity from ASC Topic 915, <i>Development Stage Entities,
</i>thereby removing the distinction between development stage entities and other reporting entities from GAAP. In addition, the
amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements
of operations, cash flows, and stockholder’s equity, (2) label the financial statements as those of a development stage
entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the
first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.
These amendments are effective for annual reporting periods beginning after December 15, 2014, with early application of the amendments
permitted. The Company’s pharmacy operations commenced on April 1, 2014. This change in the nature of the Company’s
operations included the recognition of significant revenues; as a result the Company is no longer defined as a development stage
company for reporting dates beginning April 1, 2014. With the change in the Company’s operations, revenue recognition and
its immediate adoption of ASU No. 2014-10, the Company no longer presents or discloses any information required under ASC Topic
915.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The following table summarizes information about stock options
outstanding and exercisable at June 30, 2014:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="10" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options Outstanding</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Options Exercisable</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Average</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Weighted</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Remaining</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Average</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Average</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Number</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Contractual</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercise</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Number</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercise</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Range of Exercise Prices</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Life in Years</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Price</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Exercisable</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Price</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 40%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$2.40 - $3.20</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">250,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.07</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2.80</font></td>
<td 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: 10pt Times New Roman, Times, Serif">250,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 9%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2.80</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$3.60 - $4.51</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">515,107</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4.95</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4.25</font></td>
<td 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: 10pt Times New Roman, Times, Serif">375,359</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4.33</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$5.49 - $7.71</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">249,225</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">9.28</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.67</font></td>
<td 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: 10pt Times New Roman, Times, Serif">35,030</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.02</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$8.06 - $10.75</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">293,335</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">7.73</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">8.99</font></td>
<td 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: 10pt Times New Roman, Times, Serif">128,252</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">9.02</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">28.00 - $80.00</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6,800</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.63</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">40.86</font></td>
<td 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: 10pt Times New Roman, Times, Serif">6,800</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">40.86</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,314,467</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">6.41</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5.66</font></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: 10pt Times New Roman, Times, Serif">795,441</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4.99</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: -0.75in"> </p>
50097
150151
2016-09-30
2018-10-31
2015-12-31
7565
3874
3137
821050
814722
-6328
5.94
5.94
5.93
9130376
446610
9619
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>NOTE 1. OVERVIEW, BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Company and Background</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Imprimis Pharmaceuticals, Inc. (“Imprimis”
or the “Company”) is a vertically-integrated specialty pharmaceutical company dedicated to delivering high quality,
novel and customizable medicines to physicians and patients at accessible prices. Imprimis is pioneering a new commercial pathway
using compounding pharmacies for the formulation and distribution of its proprietary drug therapies which include formulations
in ophthalmology, wound management and urology.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 1, 2014, the Company acquired
Pharmacy Creations, LLC (“PC”), a New Jersey based compounding pharmacy; effective with this acquisition the Company
commenced sales and marketing efforts surrounding Imprimis’ portfolio of proprietary and non-proprietary drug formulations.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Basis of Presentation</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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 and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2014. 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, 2013.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The accompanying condensed consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions
have been eliminated in consolidation.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Business Combinations</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for business combinations
by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair
values on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions,
especially at acquisition date with respect to intangible assets, estimated contingent consideration payments and pre-acquisition
contingencies. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the
future include but are not limited to:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 115%"> </td>
<td style="width: 24px; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents; and</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: justify; line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">discount rates utilized in valuation estimates.</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Unanticipated events and circumstances
may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change
in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from
events after the acquisition date, such as changes in our estimate of the revenue targets, will be recognized in earnings in the
period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration could have
a material effect on the financial position, results of operations, or cash flows in the period of the change in
estimate.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Research and Development</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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, and costs related to clinical
trials, contract services and outsourced contracts.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Intellectual Property</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The costs of acquiring intellectual property
rights to be used in the research and development process, including licensing fees and milestone payments, are charged to research
and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired
rights, and are capitalized in situations where the Company has identified an alternative future use. No costs associated with
acquiring intellectual property rights have been capitalized to date. Costs of maintaining intellectual property rights are expensed
as incurred.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Revenue Recognition and Deferred Revenue</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recognizes 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 began generating revenues upon the acquisition
of PC in the second quarter of 2014, which includes sales of certain of our proprietary compounded drug formulations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Product Revenues</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Determination of criteria (3) and (4) is
based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the
collectability of those amounts. Estimated returns and allowances, and other adjustments are 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 are subject to refund until such time that the Company and the customer jointly determine
that the product has been delivered or no refund will be required.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>License Revenues</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt 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: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Non-refundable 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 compounded drug preparations is delivered. Such deliverables
may include physical quantities of compounded drug preparations, design of the compounded drug preparations and structure-activity
relationships, the conceptual framework and mechanism of action, and rights to the patents or patents pending for such compounded
drug preparations. We defer recognition of non-refundable 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: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the three and six months ended June
30, 2014 and 2013, the Company recorded $3,331, $4,741 and $2,500, $5,000, respectively, in revenues, related to royalty payments.
In January 2013, the Company entered into a license agreement with ResolutionMD, LLC granting ResolutionMD, LLC rights to its Accudel
delivery technology to be used for anti-cellulite formulations. Under the license agreement, the Company received $10,000 as a
guaranteed minimum royalty amount for the year ended December 31, 2013. The Company is due annual guaranteed minimum royalty payments
and additional royalty payments based on a percent (generally, 5%-7%) of net sales of any products covered under the license agreement
in excess of the guaranteed amounts. The license agreement with ResolutionMD, LLC, unless terminated earlier, has a term of 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 2014 fiscal year.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Cost of Sales</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Cost of sales includes direct and indirect
costs to manufacture formulations and products sold, including active pharmaceutical ingredients, personnel costs, packaging, storage,
royalties (see Note 11), shipping and handling costs and the write-off of obsolete inventory.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Income Taxes</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for income taxes
under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 740, “Income Taxes”, or ASC 740. As of June 30, 2014, 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 June 30, 2014 and December
31, 2013, and has not recognized interest and/or penalties in the condensed consolidated statements of operations for the
periods ended June 30, 2014 and 2013. 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: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Cash and Cash Equivalents</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt 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: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Concentrations of Credit Risk</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt 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 up to $250,000 per owner. At June 30, 2014, the Company had
approximately $11.8 million in cash deposits in excess of FDIC limits.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Accounts Receivable</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The balance in accounts receivable consists
of revenue amounts the Company has invoiced and recognized, but for which payment has not been received. Accounts receivable are
presented net of an allowance for doubtful accounts in the amount of $3,957 as of June 30, 2014.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Inventories</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventories are stated at the lower of cost
or market. Cost is determined on a first-in, first-out (“FIFO”) basis. The Company evaluates the carrying value of
inventories on a regular basis, based on the price expected to be obtained for products in their respective markets compared with
historical cost. Write-downs of inventories are considered to be permanent reductions in the cost basis of inventories.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company also regularly evaluates its inventories
for excess quantities and obsolescence (expiration), taking into account such factors as historical and anticipated future sales
or use in production compared to quantities on hand and the remaining shelf life of products and active pharmaceutical ingredients
on hand. The Company establishes reserves for excess and obsolete inventories as required based on its analyses.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Furniture and Equipment</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Furniture and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the
estimated useful life of the asset. Leasehold improvements are amortized over the estimated useful life or remaining lease term,
whichever is shorter. Computer software and hardware, and furniture and equipment are depreciated over three to five years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Goodwill and Intangible Assets</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The Company will review its goodwill and
indefinite-lived intangible assets for impairment as of January 1 of each year or when an event or a change in circumstances
indicates the fair value of a reporting unit may be below its carrying amount. Events or changes in circumstances considered
as impairment indicators include but are not limited to the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; line-height: 115%"> </td>
<td style="width: 24px; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">significant underperformance of the Company’s business relative to expected operating results;</font></td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">significant adverse economic and industry trends;</font></td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">significant decline in the Company’s market capitalization for an extended period of time relative to net book value; and</font></td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">expectations that a reporting unit will be sold or otherwise disposed.</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The annual goodwill impairment test consists of a two-step
process as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Step 1. </i>The Company compares
the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting
unit is determined using a discounted cash flow valuation analysis. The carrying value of each reporting unit is determined by
specifically identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenues,
or other methods as deemed appropriate by management. If the carrying amount of a reporting unit exceeds its fair value, an indication
exists that the reporting unit’s goodwill may be impaired and the Company then performs the second step of the impairment
test. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Step 2. </i>If further analysis is
required, the Company compares the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting
unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation, to its carrying
amount. If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss will be recognized
in an amount equal to that excess.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Impairment of Long-Lived Assets</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Long-lived assets, such as
furniture, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal
group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the
consolidated balance sheet, if material.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the three and six months ended
June 30, 2014 and 2013, the Company did not recognize any impairment of long-lived assets.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Deferred Rent</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Fair Value Measurements</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt 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%"> </td>
<td style="text-align: justify; line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt 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%"> </td>
<td style="text-align: justify; line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt 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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">At June 30, 2014 and December 31, 2013,
the Company did not have any financial assets or liabilities which are measured on a recurring basis. At June 30, 2014 and December
31, 2013, the Company’s financial instruments include cash and cash equivalents, restricted short-term investments, accounts
receivable, accounts payable and accrued expenses, accrued payroll and related liabilities, customer deposits, and capital
lease. The carrying amount of these financial instruments, except for the restricted short-term investment and capital lease, approximates
fair value due to the short-term maturities of these instruments. The Company’s restricted short-term investments are carried
at amortized cost which approximates fair value. Based on borrowing rates currently available to the Company, the carrying value
of the capital lease approximates fair value.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>Stock-Based Compensation</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">All stock-based payments to employees
and consultants, including grants of stock options, warrants, restricted stock units (“RSUs”) and restricted stock,
are recognized in the condensed consolidated financial statements based upon their fair values. The Company uses the Black-Scholes-Merton
option pricing model and Monte Carlo Simulation to estimate the fair value of stock-based awards. The fair value is determined
at the date of 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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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 stock-based consulting expenses in its consolidated
balance sheets.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recorded stock-based compensation
(including the amortization of stock-based prepaid consulting fees) related to equity instruments granted to employees, directors
and consultants as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 24%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Employees - selling and marketing</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">16,994</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">30,861</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Employees - 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: 10pt Times New Roman, Times, Serif">561,733</font></td>
<td 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: 10pt Times New Roman, Times, Serif">378,895</font></td>
<td 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: 10pt Times New Roman, Times, Serif">1,105,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">464,898</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td 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: 10pt Times New Roman, Times, Serif">44,619</font></td>
<td 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td 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: 10pt Times New Roman, Times, Serif">111,750</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Directors - 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: 10pt Times New Roman, Times, Serif">42,147</font></td>
<td 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: 10pt Times New Roman, Times, Serif">45,458</font></td>
<td 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: 10pt Times New Roman, Times, Serif">84,293</font></td>
<td 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: 10pt Times New Roman, Times, Serif">248,250</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Consultants - selling and marketing</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: 10pt Times New Roman, Times, Serif">14,730</font></td>
<td 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td 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: 10pt Times New Roman, Times, Serif">30,783</font></td>
<td 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: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Consultants - 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: 10pt Times New Roman, Times, Serif">18,337</font></td>
<td 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: 10pt Times New Roman, Times, Serif">345,605</font></td>
<td 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: 10pt Times New Roman, Times, Serif">86,839</font></td>
<td 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: 10pt Times New Roman, Times, Serif">505,527</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">4,814</font></td>
<td 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: 10pt Times New Roman, Times, Serif">180,559</font></td>
<td 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: 10pt Times New Roman, Times, Serif">8,916</font></td>
<td 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: 10pt Times New Roman, Times, Serif">117,959</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">658,755</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">995,136</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,346,692</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,448,384</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the six months ended June 30,
2014, the Company issued 6,868 shares of common stock, valued at $50,000 in connection with the resolution of a contract dispute.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>Basic and Diluted Net Loss per Common Share</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal 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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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 3,419,149 and 3,138,004 at June 30, 2014
and 2013, 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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table shows the computation
of basic and diluted net loss per share of common stock for the three and six months ended June 30, 2014 and 2013:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; 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 style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 24%; line-height: 115%"><font style="font: 10pt 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 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2,595,725</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2,218,052</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(4,920,888</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(3,683,533</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Denominator – weighted
average number of shares 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: 10pt Times New Roman, Times, Serif">9,109,842</font></td>
<td 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: 10pt Times New Roman, Times, Serif">8,890,668</font></td>
<td 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: 10pt Times New Roman, Times, Serif">9,060,496</font></td>
<td 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: 10pt Times New Roman, Times, Serif">8,342,497</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>Net loss per share, basic and diluted</b></font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.28</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.25</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.54</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(0.44</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Use of Estimates</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/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,
valuation of deferred taxes, goodwill and, intangible assets, recoverability of long-lived assets and goodwill, and valuation
of stock-based compensation issued to employees and non-employees. Actual results could differ from those estimates.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Reclassifications</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/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 2014 condensed consolidated financial
statements. The Company has classified certain expenses as selling and marketing whereas in prior periods certain selling and
marketing expenses were included as an expense line item titled selling, general and administrative in the condensed
consolidated statements of operations. 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: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><b>Recently Adopted Accounting Pronouncements</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward,
a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 provides explicit guidance on the financial statement
presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward
exists. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December
15, 2013, with an option for early adoption. 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 the Company’s condensed consolidated financial statements.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In June 2014, the FASB issued ASU No. 2014-10,
“Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities”. The
amendments in this update remove the definition of a development stage entity from ASC Topic 915, <i>Development Stage Entities,
</i>thereby removing the distinction between development stage entities and other reporting entities from GAAP. In addition, the
amendments eliminate the requirements for development stage entities to (1) present inception-to-date information on the statements
of operations, cash flows, and stockholder’s equity, (2) label the financial statements as those of a development stage entity,
(3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year
in which the entity is no longer a development stage entity that in prior years it had been in the development stage. These amendments
are effective for annual reporting periods beginning after December 15, 2014, with early application of the amendments permitted.
The Company’s pharmacy operations commenced on April 1, 2014. This change in the nature of the Company’s operations
included the recognition of significant revenues; as a result the Company is no longer defined as a development stage company for
reporting dates beginning, April 1, 2014. With the change in the Company’s operations, revenue recognition and its immediate adoption
of ASU No. 2014-10, the Company no longer presents or discloses any information required under ASC Topic 915.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><b>Recently Announced Accounting Pronouncements</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2014, FASB issued ASU No.
2014-09, “Revenue from Contracts with Customers.” The objective of ASU 2014-19 is to establish a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede
most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is
that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying
the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in
the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance
obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all
contracts with customers except those that are within the scope of other topics in the FASB ASC. The new guidance is
effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for
public companies. Early adoption is not permitted. The Company is currently evaluating the new guidance and has not
determined the impact this standard may have on its consolidated financial statements.</p>
10406
20426
3594
6328
6868
37493
3.60
4.27
5000000
6.94
644113
P5Y
P10Y
<p style="margin: 0pt; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Vesting terms for options granted to employees,
directors and consultants typically included one of the following vesting schedules: 25% or 33% of the shares subject to the option
vest and become exercisable on the first anniversary of the grant date and the remaining 75% or 67%, respectively, of the shares
subject to the option vest and become exercisable quarterly in equal installments thereafter over two or three years, respectively;
quarterly vesting over a three year period; annual vesting over three years; or monthly, quarterly or 100% vesting associated
with the provision or completion of services provided under contracts with consultants.</font></p>
2684000
2418000
P2Y5M23D
P1Y9M18D
643117
26649
676926
318823
339932
8701
225886
-75000
P4Y8M1D
P6Y3M22D
1389960
1289960
-100000
3.19
3.22
-2.88
P1Y8M12D
139444
596281
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>NOTE 10. EMPLOYEE SAVINGS PLAN</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has established an employee
savings plan pursuant to Section 401(k) of the Internal Revenue Code, effective January 1, 2014. The plan allows participating
employees to deposit into tax deferred investment accounts up to 100% of their salary, subject to annual limits. The Company makes
contributions to the plan in an amount not less than 3% of the participants’ annual cash compensation, subject to annual
limits. The Company contributed approximately $33,000 to the plan during the six months ended June 30, 2014.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Company and Background</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Imprimis Pharmaceuticals, Inc. (“Imprimis”
or the “Company”) is a vertically-integrated specialty pharmaceutical company dedicated to delivering high quality,
novel and customizable medicines to physicians and patients at accessible prices. Imprimis is pioneering a new commercial pathway
using compounding pharmacies for the formulation and distribution of its proprietary drug therapies which include formulations
in ophthalmology, wound management and urology.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 1, 2014, the Company acquired
Pharmacy Creations, LLC (“PC”), a New Jersey based compounding pharmacy; effective with this acquisition the Company
commenced sales and marketing efforts surrounding Imprimis’ portfolio of proprietary and non-proprietary drug formulations.</p>
1.00
0.03
33000
15761365
13879046
26892
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331621
331621
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15734473
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395000000
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-7115
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8680
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1565
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191152
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476549
476549
669111
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667701
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664370
664370
4741
5000
3331
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1600
484103
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192
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6868
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3419149
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-2218052
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The total acquisition date fair value
of the consideration to be transferred is estimated at approximately $1.1 million, as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Cash payment to sellers at closing</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">600,000</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Contingent common stock issuance to the Sellers</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: 10pt Times New Roman, Times, Serif">483,156</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Contingent cash consideration to the Sellers</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: 10pt Times New Roman, Times, Serif">31,466</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total acquisition date fair value</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,114,622</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table summarizes the estimated
fair values of the assets acquired and liabilities assumed at the acquisition date.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Cash and cash equivalents</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,982</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts receivable</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: 10pt Times New Roman, Times, Serif">58,420</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid expenses and other assets</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: 10pt Times New Roman, Times, Serif">30,256</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Inventory</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: 10pt Times New Roman, Times, Serif">213,190</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Property and equipment</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: 10pt Times New Roman, Times, Serif">44,510</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Intangible assets</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: 10pt Times New Roman, Times, Serif">659,000</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total identifiable assets acquired</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: 10pt Times New Roman, Times, Serif">1,010,358</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts payable and accrued liabilities</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: 10pt Times New Roman, Times, Serif">120,049</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Other liabilities</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: 10pt Times New Roman, Times, Serif">107,308</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total liabilities assumed</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: 10pt Times New Roman, Times, Serif">227,357</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total identifiable assets less liabilities assumed</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: 10pt Times New Roman, Times, Serif">783,001</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Goodwill</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: 10pt Times New Roman, Times, Serif">331,621</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td 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%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Net assets acquired</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,114,622</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The amount of revenues and operating
loss of PC included in the Company’s condensed consolidated statement of operations from the acquisition date through the
period ended June 30, 2014 is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total revenues</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">664,370</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Operating loss</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(423,589</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The unaudited pro forma results presented
include amortization charges for intangible assets and eliminations of intercompany transactions.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 24%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total revenues</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">667,701</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">744,299</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,286,805</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,453,050</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Net loss</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2,595,725</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2,054,878</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(4,854,258</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(3,374,915</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table sets forth the components
of identified intangible assets associated with the PC acquisition and their estimated useful lives.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Fair Value</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Useful Life</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 56%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Customer relationships</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">596,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 20%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10 - 15 years</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Trade Name</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: 10pt Times New Roman, Times, Serif">5,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5 years</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Non-compete covenant</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: 10pt Times New Roman, Times, Serif">50,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4 years</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Licenses</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: 10pt Times New Roman, Times, Serif">8,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">25 years</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">659,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"></p>
1114622
4982
58420
30256
213190
44510
659000
1010358
120049
107308
227357
664370
-423589
1286805
1453050
667701
744299
-4854258
-3374915
-2595725
-2054878
P5Y
P4Y
P25Y
P10Y
P15Y
3500000
3500000
7500000
2015-03-31
2016-03-31
2016-03-31
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The composition of inventories as of
June 30, 2014 was as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>June 30, 2014</b></font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Raw materials</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">164,127</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Finished goods</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: 10pt Times New Roman, Times, Serif">8,623</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total inventories</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">172,750</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b></b></p>
164127
8623
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>NOTE 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Prepaid expenses and other current assets
consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>June 30, 2014</b></font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2"> </td>
<td 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="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(unaudited)</b></font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2013</b></font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid stock-based consulting expenses</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt 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: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">26,649</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid 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: 10pt Times New Roman, Times, Serif">21,875</font></td>
<td 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: 10pt Times New Roman, Times, Serif">16,288</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid insurance</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: 10pt Times New Roman, Times, Serif">180,519</font></td>
<td 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: 10pt Times New Roman, Times, Serif">39,166</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Other prepaid expenses and deposits</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: 10pt Times New Roman, Times, Serif">121,851</font></td>
<td 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: 10pt Times New Roman, Times, Serif">22,964</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total prepaid expenses and other current assets</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">324,245</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">105,067</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid expenses and other current assets consisted
of the following:</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>June
30, 2014</b></font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td colspan="2"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>(unaudited)</b></font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2013</b></font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid stock-based consulting
expenses</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">26,649</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid rent</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">21,875</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">16,288</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid insurance</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">180,519</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">39,166</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Other prepaid expenses and deposits</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">121,851</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">22,964</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total prepaid expenses and other current
assets</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">324,245</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">105,067</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="margin: 0pt"></p>
22964
121851
39166
180519
16288
21875
26649
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>NOTE 6. INTANGIBLE ASSETS AND GOODWILL</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The Company’s intangible assets at June 30, 2014 consist
of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Amortization</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">periods</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accumulated</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Net</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(in years)</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Cost</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">amortization</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Carrying value</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 34%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Customer relationships</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 14%; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10 - 15</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 14%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">596,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 14%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(9,933</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 14%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">586,067</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Trade name</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5</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: 10pt Times New Roman, Times, Serif">5,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">(250</font></td>
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">4,750</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Non-compete</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4</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: 10pt Times New Roman, Times, Serif">50,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">(6,250</font></td>
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">43,750</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Licenses</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">25</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: 10pt Times New Roman, Times, Serif">8,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">(1,000</font></td>
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">7,000</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">659,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(17,433</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">641,567</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">Amortization expenses for intangible assets for the three
and six months ended June 30, 2014 was as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Customer relationships</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">250</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">250</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Trade name</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: 10pt Times New Roman, Times, Serif">9,933</font></td>
<td 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: 10pt Times New Roman, Times, Serif">9,933</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Non-compete</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: 10pt Times New Roman, Times, Serif">6,250</font></td>
<td 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: 10pt Times New Roman, Times, Serif">6,250</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Licenses</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: 10pt Times New Roman, Times, Serif">1,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">1,000</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">17,433</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">17,433</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">Estimated future amortization expense for the Company’s
intangible assets as June 30, 2014 is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Years ending December 31,</font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Remainder of 2014</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">23,600</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2015</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">53,500</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2016</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">53,500</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">53,500</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2018</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">44,100</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The changes in the carrying value of the Company’s
goodwill during the six months ended June 30, 2014 were as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Balance at January 1, 2014:</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Goodwill</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Acquisition of PC</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="width: 20%; border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">331,621</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Balance at June 30, 2014</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">331,621</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The Company’s intangible assets at June 30, 2014 consist
of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Amortization</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">periods</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accumulated</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Net</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(in years)</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Cost</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">amortization</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Carrying value</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 34%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Customer relationships</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 14%; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10 - 15 </font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 14%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">596,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 14%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(9,933</font></td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 14%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">586,067</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Trade name</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5 </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: 10pt Times New Roman, Times, Serif">5,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">(250</font></td>
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">4,750</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Non-compete</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4</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: 10pt Times New Roman, Times, Serif">50,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">(6,250</font></td>
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">43,750</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Licenses</font></td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">25</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: 10pt Times New Roman, Times, Serif">8,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">(1,000</font></td>
<td style="line-height: 115%"><font style="font: 10pt 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: 10pt Times New Roman, Times, Serif">7,000</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">659,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(17,433</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">641,567</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">Amortization expenses for intangible assets for the three
and six months ended June 30, 2014 was as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 54%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Customer relationships</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">250</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">250</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Trade name</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: 10pt Times New Roman, Times, Serif">9,933</font></td>
<td 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: 10pt Times New Roman, Times, Serif">9,933</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Non-compete</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: 10pt Times New Roman, Times, Serif">6,250</font></td>
<td 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: 10pt Times New Roman, Times, Serif">6,250</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Licenses</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: 10pt Times New Roman, Times, Serif">1,000</font></td>
<td 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: 10pt Times New Roman, Times, Serif">1,000</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">17,433</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">17,433</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">Estimated future amortization expense for the Company’s
intangible assets as June 30, 2014 is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Years ending December 31,</font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Remainder of 2014</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">23,600</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2015</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">53,500</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2016</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">53,500</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2017</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">53,500</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2018</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">44,100</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The changes in the carrying value of the Company’s
goodwill during the six months ended June 30, 2014 were as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Balance at January 1, 2014:</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Goodwill</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Acquisition of PC</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="width: 20%; border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">331,621</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Balance at June 30, 2014</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">331,621</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="margin: 0pt"></p>
659000
596000
5000
50000
8000
P5Y
P4Y
P25Y
P10Y
P15Y
659000
596000
5000
50000
8000
-17433
-9933
-250
-6250
-1000
641567
586067
4750
43750
7000
17433
17433
250
9933
6250
1000
250
9933
6250
1000
23600
53500
44100
331621
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><b>NOTE 8. DEBT</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Line of Credit</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">PC entered into a working capital line of
credit agreement with a financial institution on March 21, 2008 and subsequently renewed the agreement on September 6, 2013. The
line of credit had a maturity date of September 1, 2016. The line of credit agreement allowed PC to borrow of up to $75,000 and
was secured by a first security interest on all business assets. PC was required to pay regular monthly payments of all accrued
unpaid interest due monthly, with interest on the line of credit calculated as the greater of one of the following: (a) the Prime
Rate (as defined and published in the Wall Street Journal) plus 1.00% per annum, or (b) 4.25% per annum. The line of credit agreement
was terminated following the acquisition of PC, and no amounts were borrowed, paid or outstanding during the period ended June
30, 2014 following the Company’s acquisition of PC.</p>
75000
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">PC was required to pay regular monthly payments
of all accrued unpaid interest due monthly, with interest on the line of credit calculated as the greater of one of the following:
(a) the Prime Rate (as defined and published in the Wall Street Journal) plus 1.00% per annum, or (b) 4.25% per annum. The line
of credit agreement was terminated following the acquisition of PC, and no amounts were borrowed, paid or outstanding during the
period ended June 30, 2014 following the Company’s acquisition of PC.</p>
168000
2014-05-01
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">PC was required to pay regular monthly principal
and interest payments with the interest on the term loan calculated as the greater of one of the following: (a) the Prime Rate
(as defined and published in the Wall Street Journal) plus 1.50% per annum, or (b) 4.25% per annum. The term loan was secured
by a first security interest on all business assets and the term loan was personally guaranteed by the members of PC. The term
loan was terminated following the acquisition of PC, and no amounts were borrowed, paid or outstanding during the period ended
June 30, 2014 following the Company’s acquisition of PC.</p>
50000
23265
5000000
0.001
0
0
100000
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company leases equipment under a
capital lease with an interest rate of 4.25% per annum. At June 30, 2014, future payments under this capital lease are as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Years ending December 31,</font></td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Remainder of 2014</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">3,505</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2015</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: 10pt Times New Roman, Times, Serif">7,009</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">2016</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: 10pt Times New Roman, Times, Serif">7,009</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total minimum lease payments</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: 10pt Times New Roman, Times, Serif">17,523</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less amount representing interest</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: 10pt Times New Roman, Times, Serif">(927</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Present value of future minimum lease payments</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: 10pt Times New Roman, Times, Serif">16,596</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Less current portion</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: 10pt Times New Roman, Times, Serif">(6,428</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Capital lease obligation, net of current portion</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10,168</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"></p>
16596
3505
7009
7009
17523
927
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Once the Company relocates to the new
office space (7,565 square feet), effective September 1, 2014, the Company’s intention is to sublet the 3,874 square feet
of its current offices through its remaining lease term.</p>
0.0425
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><b>NOTE 12. SEGMENT INFORMATION</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company operates the business on the basis
of a single reportable segment, which is the business of providing sterile and non-sterile pharmaceutical compounding services.
The Company’s chief operating decision-maker is the Chief Executive Officer, who evaluates the Company as a single operating
segment.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company categorizes revenues by geographic
area based on selling location. All operations are currently located in the United States; therefore, total revenues for 2014 and
2013 are attributed to the United States. All long-lived assets at June 30, 2014 are located in the United States.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company sells its compounded formulations
to a large number of customers. Less than 10% of the Company’s total pharmacy sales were derived from a single customer for
the three and six months ended June 30, 2014.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company receives its active pharmaceutical
ingredients from three main suppliers. These suppliers accounted for 90% of drug and chemical purchases during the three and six
months ended June 30, 2014.</p>
0.10
0.10
53500
53500
2012-04-25
2012-04-25
2013-02-07
2013-02-28
2013-07-19
2015-04-25
2015-04-25
2018-02-07
2016-02-28
2018-07-19
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 2. ACQUISITION – PHARMACY
CREATIONS, LLC</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">On April 1, 2014, the Company acquired
all of the outstanding membership interests of PC (the “PC Acquisition”) from J. Scott Karolchyk and Bernard Covalesky
(the “Sellers”), such that PC became a wholly-owned subsidiary of the Company. The acquisition of PC permits the Company
to make and distribute its patent-pending proprietary drug formulations and other pharmaceutical preparations.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The transaction has been accounted for
as a business combination and the financial results of PC have been included in the Company’s condensed consolidated financial
statements for the period subsequent to its acquisition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The estimated acquisition date fair
value of consideration transferred, assets acquired and liabilities assumed for PC are presented below and represent the Company’s
best estimates.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Fair Value of Consideration Transferred</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">At the closing of the PC Acquisition,
the Company paid to the Sellers an aggregate cash purchase price of $600,000. In addition, the Sellers are entitled to receive
additional contingent consideration upon the satisfaction of certain conditions:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 24px"> </td>
<td style="width: 24px; font: 10pt/115% Calibri, Helvetica, Sans-Serif"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="font: 10pt/115% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">A contingent cash payment of $50,000, payable if PC earns revenue of over $3,500,000 for the 12 month period ending March 31, 2015.</font></td></tr>
<tr style="vertical-align: top">
<td style="font: 10pt/115% Calibri, Helvetica, Sans-Serif"> </td>
<td style="font: 10pt/115% Calibri, Helvetica, Sans-Serif"> </td>
<td style="font: 10pt/115% Calibri, Helvetica, Sans-Serif; text-align: justify"> </td></tr>
<tr style="vertical-align: top">
<td> </td>
<td style="font: 10pt/115% Calibri, Helvetica, Sans-Serif"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="font: 10pt/115% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">A contingent stock payment of up to an aggregate of 215,190 shares of the Company’s common stock, issuable only if the following revenue milestones are met:</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 48px"> </td>
<td style="width: 24px; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">if the Company earns revenue of over $7,500,000 during the 12 month period ending March 31, 2016, all 215,190 shares;</font></td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: justify; line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">if the Company earns revenue of between $3,500,000 and $7,500,000 during the 12 month period ending March 31, 2016, an aggregate of that number of shares of Imprimis common stock equal to the amount that such revenue exceeds $3,500,000 divided by 18.5882, rounded down to the lower whole number (not to exceed 215,190 shares).</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Management estimates that earnout payments
will be made, however, it has applied a discount rate to represent the risk of these not occurring in determining the fair value.
The total acquisition date fair value of the consideration to be transferred is estimated at approximately $1.1 million, as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Cash payment to sellers at closing</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">600,000</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Contingent common stock issuance to the Sellers</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: 10pt Times New Roman, Times, Serif">483,156</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Contingent cash consideration to the Sellers</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: 10pt Times New Roman, Times, Serif">31,466</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total acquisition date fair value</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,114,622</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">A liability was recognized for an estimate
of the acquisition date fair value of the future contingent common stock and cash payments and is included in the contingent acquisition
obligations in the accompanying condensed consolidated balance sheet at June 30, 2014.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Allocation of Consideration Transferred</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The identifiable assets acquired and
liabilities assumed were recognized and measured as of the acquisition date based on their estimated fair values as of April 1,
2014, the acquisition date. The excess of the acquisition date fair value of consideration transferred over estimated fair value
of the net tangible assets and intangible assets acquired was recorded as goodwill.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table summarizes the estimated
fair values of the assets acquired and liabilities assumed at the acquisition date.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Cash and cash equivalents</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4,982</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts receivable</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: 10pt Times New Roman, Times, Serif">58,420</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid expenses and other assets</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: 10pt Times New Roman, Times, Serif">30,256</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Inventory</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: 10pt Times New Roman, Times, Serif">213,190</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Property and equipment</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: 10pt Times New Roman, Times, Serif">44,510</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Intangible assets</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: 10pt Times New Roman, Times, Serif">659,000</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total identifiable assets acquired</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: 10pt Times New Roman, Times, Serif">1,010,358</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Accounts payable and accrued liabilities</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: 10pt Times New Roman, Times, Serif">120,049</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Other liabilities</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: 10pt Times New Roman, Times, Serif">107,308</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total liabilities assumed</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: 10pt Times New Roman, Times, Serif">227,357</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total identifiable assets less liabilities assumed</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: 10pt Times New Roman, Times, Serif">783,001</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Goodwill</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: 10pt Times New Roman, Times, Serif">331,621</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td 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%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 10pt; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Net assets acquired</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,114,622</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value adjustments made herein
and the allocation of purchase price is preliminary. The final allocation will be based on estimates and appraisals that will be
finalized within one year of the closing of the PC Acquisition and based on the Company’s final evaluation of PC’s
assets and liabilities, including both tangible and intangible assets. The final allocation of purchase price and the resulting
effect on net income loss may differ from the amounts included herein. If the Company’s final purchase price allocation differs
from the allocation used in preparing these condensed consolidated financial statements, the Company’s tangible and intangible
assets and net loss could be higher or lower.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Results of Operations</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The amount of revenues and operating
loss of PC included in the Company’s condensed consolidated statement of operations from the acquisition date through the
period ended June 30, 2014 is as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total revenues</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">664,370</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Operating loss</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(423,589</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Pro Forma Financial Information</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table presents the Company’s
unaudited pro forma results (including PC) for the three and six months ended June 30, 2014 and 2013 as though the companies had
been combined as of the beginning of each of the periods presented. The pro forma information is presented for informational purposes
only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the
beginning of each period presented nor is it indicative of results of operations which may occur in the future. The unaudited pro
forma results presented include amortization charges for intangible assets and eliminations of intercompany transactions.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">For the</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Three Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Six Months Ended</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2014</font></td>
<td style="text-align: center; line-height: 115%"> </td>
<td style="text-align: center; line-height: 115%"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">June 30, 2013</font></td>
<td style="text-align: center; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 24%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total revenues</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">667,701</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">744,299</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,286,805</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">1,453,050</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Net loss</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2,595,725</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(2,054,878</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(4,854,258</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">(3,374,915</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company did not incur material acquisition
expenses related to the PC Acquisition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><i> </i></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Intangible Assets</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Management engaged a third-party valuation
firm to assist in the determination of the fair value of the intangible assets. In determining the fair value of the intangible
assets the Company considered, among other factors, the best use of acquired assets, analyses of historical financial performance
and estimates of future performance of PC. The fair values of the identified intangible assets related to the customer relationships,
trade name, non-competition covenant, and state pharmacy licenses. The fair value of customer relationships and non-competition
covenant were calculated using the income approach. The fair value of the trade name and pharmacy licenses were calculated using
the cost approach. The following table sets forth the components of identified intangible assets associated with the PC acquisition
and their estimated useful lives.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<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; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Fair Value</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Useful Life</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 56%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Customer relationships</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">596,000</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 20%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">10 -15 years</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Trade Name</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: 10pt Times New Roman, Times, Serif">5,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">5 years</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Non-compete covenant</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: 10pt Times New Roman, Times, Serif">50,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">4 years</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Licenses</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: 10pt Times New Roman, Times, Serif">8,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">25 years</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td 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: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">659,000</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company determined the useful lives
of intangible assets based on the expected future cash flows and contractual lives associated with the respective asset. Trade
names represent the fair value of the brand and name recognition associated with the marketing of PC’s formulations and services.
Customer relationships represent the expected benefit from future contracts which, at the date of acquisition, were reasonably
anticipated to continue given the history and operating practices of PC. Non-competition covenant clause represents the contractual
period and expected degree of adverse economic impact that would exist in its absence. Licenses represent eight state pharmacy
licenses PC held at the date of acquisition.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Goodwill</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Of the total estimated purchase price,
$331,621 was allocated to goodwill and is attributable to expected synergies between the combined companies, including access
for the Company to distribute its patent-pending proprietary drug formulations through PC's market channels and the assembled
workforce. Goodwill represents the excess of the purchase price of the acquired business over the fair value of the underlying
net tangible and intangible assets acquired. Goodwill resulting from the PC Acquisition will be tested for impairment at least
annually and more frequently if certain indicators are present. In the event the Company determines that the value of goodwill
has become impaired, it will incur an accounting charge for the amount of the impairment during the fiscal quarter in which the
determination is made. None of the goodwill is expected to be deductible for income tax purposes.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 4. INVENTORIES</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventories are comprised of over-the-counter
(“OTC”) retail pharmacy products, commercial pharmaceutical products, related laboratory supplies and active pharmaceutical
ingredients. The composition of inventories as of June 30, 2014 was as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<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; text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif"><b>June 30, 2014</b></font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 77%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Raw materials</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 20%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">164,127</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Finished goods</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: 10pt Times New Roman, Times, Serif">8,623</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Total inventories</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 2.25pt double; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">172,750</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b></b></p>
50000
215190
<p style="margin: 0pt"></p>
<p style="margin: 0pt"><font style="font: 10pt Times New Roman, Times, Serif">if the Company earns revenue of over $7,500,000
during the 12 month period ending March 31, 2016, all 215,190 shares;</font></p>
<p style="margin: 0pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="margin: 0pt"><font style="font: 10pt Times New Roman, Times, Serif">if the Company earns revenue of between $3,500,000
and $7,500,000 during the 12 month period ending March 31, 2016, an aggregate of that number of shares of Imprimis common stock
equal to the amount that such revenue exceeds $3,500,000 divided by 18.5882, rounded down to the lower whole number (not to exceed
215,190 shares).</font></p>
331621
483156
31466
0.10
0.90
0.90
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Business Combinations</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for business combinations
by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair
values on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions,
especially at acquisition date with respect to intangible assets, estimated contingent consideration payments and pre-acquisition
contingencies. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the
future include but are not limited to:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 10pt Calibri, Helvetica, Sans-Serif">
<tr style="vertical-align: top">
<td style="width: 24px; text-align: justify; line-height: 115%"> </td>
<td style="width: 24px; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents; and</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: justify; line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify; line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">discount rates utilized in valuation estimates. </font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Unanticipated events and circumstances
may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change
in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from
events after the acquisition date, such as changes in our estimate of the revenue targets, will be recognized in earnings in
the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration could
have a material effect on the financial position, results of operations, or cash flows in the period of the change in estimate.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Cost of Sales</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Cost of sales includes direct and indirect
costs to manufacture formulations and products sold, including active pharmaceutical ingredients, personnel costs, packaging,
storage, royalties (see Note 11), shipping and handling costs and the write-off of obsolete inventory.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Accounts Receivable</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The balance in accounts receivable
consists of revenue amounts the Company has invoiced and recognized, but for which payment has not been received. Accounts receivable
are presented net of an allowance for doubtful accounts in the amount of $3,957 as of June 30, 2014.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Inventories</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventories are stated at the lower
of cost or market. Cost is determined on a first-in, first-out (“FIFO”) basis. The Company evaluates the carrying value
of inventories on a regular basis, based on the price expected to be obtained for products in their respective markets compared
with historical cost. Write-downs of inventories are considered to be permanent reductions in the cost basis of inventories.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company also regularly evaluates
its inventories for excess quantities and obsolescence (expiration), taking into account such factors as historical and anticipated
future sales or use in production compared to quantities on hand and the remaining shelf life of products and active pharmaceutical
ingredients on hand. The Company establishes reserves for excess and obsolete inventories as required based on its analyses.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Goodwill and Intangible Assets</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company will review its goodwill
and indefinite-lived intangible assets for impairment as of January 1 of each year or when an event or a change in circumstances
indicates the fair value of a reporting unit may be below its carrying amount. Events or changes in circumstances considered as
impairment indicators include but are not limited to the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 24px; line-height: 115%"> </td>
<td style="width: 24px; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">significant underperformance of the Company’s business relative to expected operating results;</font></td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">significant adverse economic and industry trends;</font></td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="text-align: justify; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">significant decline in the Company’s market capitalization for an extended period of time relative to net book value; and</font></td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: top">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">●</font></td>
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">expectations that a reporting unit will be sold or otherwise disposed.</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The annual goodwill impairment test consists of a two-step
process as follows:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Step 1. </i>The Company compares
the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting
unit is determined using a discounted cash flow valuation analysis. The carrying value of each reporting unit is determined by
specifically identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenues,
or other methods as deemed appropriate by management. If the carrying amount of a reporting unit exceeds its fair value, an indication
exists that the reporting unit’s goodwill may be impaired and the Company then performs the second step of the impairment
test. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Step 2. </i>If further analysis
is required, the Company compares the implied fair value of the reporting unit’s goodwill, determined by allocating the
reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation,
to its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss
will be recognized in an amount equal to that excess.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Impairment of Long-Lived Assets</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Long-lived assets, such as furniture
and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount
by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented
in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no
longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in
the appropriate asset and liability sections of the consolidated balance sheet, if material.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">During the three and six months ended
June 30, 2014 and 2013, the Company did not recognize any impairment of long-lived assets.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b>Recently Announced Accounting Pronouncements</b></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2014, FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers.” The objective of ASU 2014-19 is to establish a single comprehensive model
for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue
recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the
contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4)
allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity
satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope
of other topics in the FASB ASC. The new guidance is effective for annual reporting periods (including interim periods within
those periods) beginning after December 15, 2016 for public companies. Early adoption is not permitted. The Company is currently
evaluating the new guidance and has not determined the impact this standard may have on its consolidated financial statements.</p>
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