0001360214
2013-06-30
0001360214
2012-12-31
0001360214
2013-01-01
2013-06-30
0001360214
2012-01-01
2012-06-30
0001360214
1998-10-24
2013-06-30
0001360214
IMMY:EmployeesSellingAndAdminstrativeMember
2013-01-01
2013-06-30
0001360214
IMMY:EmployeesSellingAndAdminstrativeMember
2012-01-01
2012-06-30
0001360214
IMMY:EmployeesResearchAndDevelopmentMember
2013-01-01
2013-06-30
0001360214
IMMY:EmployeesResearchAndDevelopmentMember
2012-01-01
2012-06-30
0001360214
IMMY:DirectorSellingAndAdminstrativeMember
2013-01-01
2013-06-30
0001360214
IMMY:DirectorSellingAndAdminstrativeMember
2012-01-01
2012-06-30
0001360214
IMMY:ConsultantsSellingAndAdminstrativeMember
2013-01-01
2013-06-30
0001360214
IMMY:ConsultantsSellingAndAdminstrativeMember
2012-01-01
2012-06-30
0001360214
IMMY:ConsultantsResearchAndDevelopmentMember
2013-01-01
2013-06-30
0001360214
IMMY:ConsultantsResearchAndDevelopmentMember
2012-01-01
2012-06-30
0001360214
us-gaap:WarrantMember
2013-01-01
2013-06-30
0001360214
us-gaap:WarrantMember
2012-12-31
0001360214
us-gaap:WarrantMember
2013-06-30
0001360214
2011-12-31
0001360214
2012-06-30
0001360214
us-gaap:RestrictedStockUnitsRSUMember
2013-01-01
2013-06-30
0001360214
us-gaap:StockOptionMember
2013-01-01
2013-06-30
0001360214
IMMY:DermaStarMember
2013-06-30
0001360214
IMMY:AprilPpmMember
2013-06-30
0001360214
IMMY:UnderwriterWarrantsMember
2013-06-30
0001360214
IMMY:IrConsultantMember
2013-06-30
0001360214
us-gaap:RestrictedStockUnitsRSUMember
2012-12-31
0001360214
us-gaap:RestrictedStockUnitsRSUMember
2013-06-30
0001360214
IMMY:StockOptionPlanMember
2013-06-30
0001360214
IMMY:StockOptionPlanMember
2013-01-01
2013-06-30
0001360214
us-gaap:StockOptionMember
2013-01-01
2013-06-30
0001360214
IMMY:StockOption1Member
2013-01-01
2013-06-30
0001360214
IMMY:StockOption2Member
2013-01-01
2013-06-30
0001360214
IMMY:StockOption3Member
2013-01-01
2013-06-30
0001360214
IMMY:StockOption4Member
2013-01-01
2013-06-30
0001360214
IMMY:StockOption5Member
2013-01-01
2013-06-30
0001360214
IMMY:WarrantActivityMember
2013-01-01
2013-06-30
0001360214
2013-04-01
2013-06-30
0001360214
2012-04-01
2012-06-30
0001360214
2013-08-13
0001360214
1998-10-23
0001360214
IMMY:OptionsGrantedConsultantsMember
2013-01-01
2013-06-30
0001360214
us-gaap:ChiefExecutiveOfficerMember
2013-01-01
2013-06-30
0001360214
IMMY:ConsultantMember
2013-01-01
2013-06-30
0001360214
IMMY:EmployeesSellingAndAdminstrativeMember
2013-04-01
2013-06-30
0001360214
IMMY:EmployeesSellingAndAdminstrativeMember
2012-04-01
2012-06-30
0001360214
IMMY:EmployeesResearchAndDevelopmentMember
2013-04-01
2013-06-30
0001360214
IMMY:EmployeesResearchAndDevelopmentMember
2012-04-01
2012-06-30
0001360214
IMMY:DirectorSellingAndAdminstrativeMember
2013-04-01
2013-06-30
0001360214
IMMY:DirectorSellingAndAdminstrativeMember
2012-04-01
2012-06-30
0001360214
IMMY:ConsultantsSellingAndAdminstrativeMember
2013-04-01
2013-06-30
0001360214
IMMY:ConsultantsSellingAndAdminstrativeMember
2012-04-01
2012-06-30
0001360214
IMMY:ConsultantsResearchAndDevelopmentMember
2013-04-01
2013-06-30
0001360214
IMMY:ConsultantsResearchAndDevelopmentMember
2012-04-01
2012-06-30
0001360214
us-gaap:StockOptionMember
2013-06-30
0001360214
us-gaap:StockOptionMember
2012-12-31
0001360214
IMMY:OptionsEmployeesMember
2013-01-01
2013-06-30
0001360214
IMMY:ExecutiveRestrictedStockUnitsTranche1Member
2013-01-01
2013-06-30
0001360214
IMMY:ExecutiveRestrictedStockUnitsTranche2Member
2013-01-01
2013-06-30
0001360214
IMMY:ExecutiveRestrictedStockUnitsTranche3Member
2013-01-01
2013-06-30
0001360214
IMMY:ExecutiveRestrictedStockUnitsTranche4Member
2013-01-01
2013-06-30
0001360214
IMMY:ExecutiveRestrictedStockUnitsTranche5Member
2013-01-01
2013-06-30
0001360214
IMMY:ConsultantTranche1Member
2013-01-01
2013-06-30
0001360214
IMMY:ConsultantTranche2Member
2013-01-01
2013-06-30
0001360214
IMMY:ConsultantTranche3Member
2013-01-01
2013-06-30
0001360214
IMMY:ConsultantTranche4Member
2013-01-01
2013-06-30
0001360214
IMMY:ConsultantTranche5Member
2013-01-01
2013-06-30
0001360214
us-gaap:StockOptionMember
2013-04-01
2013-06-30
0001360214
us-gaap:RestrictedStockUnitsRSUMember
2013-04-01
2013-06-30
0001360214
us-gaap:WarrantMember
2013-04-01
2013-06-30
iso4217:USD
xbrli:shares
iso4217:USD
xbrli:shares
IMMY:Y
xbrli:pure
Imprimis Pharmaceuticals, Inc.
0001360214
10-Q
2013-06-30
false
--12-31
No
No
Yes
Smaller Reporting Company
Q2
2013
8961583
1107833
709559
1667
182008
18391
55784
55784
868374
635384
18376475
10705996
15647
12548
18360828
10693448
596281
340474
61552
50034
17970320
10035615
146160
7717292
18376475
10705996
17268642
9996437
27787801
24104268
45047482
34093933
8961
6772
0.001
0.001
395000000
395000000
8961583
6772066
8961583
6772066
-0.44
-1.17
-0.25
-0.39
-3683533
-2884681
-27787801
-2218052
-1505593
200000
300000
200000
-3683533
-2684681
-27487801
-2218052
-1305593
-20008
1214484
2211798
-12940
187315
176505
375000
-1195410
-1195410
-189323
20008
5584
162999
12940
5584
24658
1730892
3576
-3703541
-1470197
-25276003
-2230992
-1118278
1132447
276574
10251208
677347
133611
2576094
1293623
15129795
1556145
984667
5000
100000
105000
2500
8342497
2469171
8890668
3874554
-2062764
-617405
-14733697
1667
-100000
1667
163617
11915
268599
111871
283984
117156
823945
-278956
-31148
-340508
-140000
254142
1448384
848038
5733812
157630
297019
801396
461166
302094
82070
24658
1730892
2073
1247
8171
807608
2475000
-55172
-15308
-73818
5172
15308
23818
-50000
-50000
168707
281679
27537
-200000
-200000
2500000
100000
50000
50000
450000
976300
191
191
100250
10052832
7903845
29336911
7934705
7571132
17970320
10052641
8203845
32777835
1600
1600
13600
432007
87732
56087
56087
1905137
3435314
241701
1500
1500
56087
100000
196300
596281
596281
139444
139444
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif"><b>NOTE
6. SUBSEQUENT EVENTS</b></font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif">The
Company has performed an evaluation of events occurring subsequent to June 30, 2013 through the filing date of this Quarterly
Report. Based on our evaluation, nothing other than the events described below need to be disclosed.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif">In
July 2013, the Company issued warrants to purchase 60,000 shares of the Company’s common stock to a consultant with an exercise
price of $8.50 per share. The warrants become exercisable on January 20, 2014 and expire five years following the issuance date.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 9pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif"><i>Novel
Drug and Eye Care Northwest Asset Purchase Agreement </i></font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 9pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif">On
August 8, 2013, we acquired intellectual property rights related to certain proprietary innovations from the compounding pharmacy
operations of Novel Drug Solutions, LLC and from Eye Care Northwest, Inc. (together referred to as the “Sellers”) pursuant
to an Asset Purchase Agreement (the “Novel APA”). As part of this acquisition we have 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 Novel APA, we
have a right of first refusal on any of the Sellers’ additional intellectual property and drug development opportunities.
The Novel 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.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif">In
consideration for the acquisition, we are obligated to make the following payments to the Sellers: (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 we file 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 we file the first New Drug application with the FDA
for the first product; and (4) certain royalty payments based on the net receipts received by us in connection with the sale or
licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) our development
costs associated with such product. If we do not file an IND for any product based on the acquired intellectual property within
five years of the date of the Novel APA, the Sellers may terminate the Novel APA and we must re-assign the acquired technology
to the Sellers.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 9pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 9pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 5. COMMITMENTS AND CONTINGENCIES</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Commitments</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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. The total lease obligation
is approximately $387,900. For the remaining fiscal year 2013, the Company’s lease commitment is approximately $62,400.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company also leases an office facility under
a noncancelable operating lease, which expires on February 28, 2014, with $3,715 due monthly until expiration. For the remaining
fiscal year 2013, the Company’s lease commitment is approximately $22,300.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Indemnities and Guarantees</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In addition to the indemnification provisions
contained in the Company’s charter documents, the Company generally enters into separate indemnification agreements with
the Company’s directors and officers. These agreements require the Company, among other things, to indemnify the director
or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by
the individual in connection with any action, suit or proceeding arising out of the individual’s status or service as the
Company’s director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent
or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual
with respect to which the individual may be entitled to indemnification by the Company. The Company also indemnifies its lessor
in connection with its facility lease for certain claims arising from the use of the facility. These guarantees and indemnities
do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically,
the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded
for these indemnities and guarantees in the accompanying condensed consolidated balance sheets.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>PCCA License Agreement</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>PCCA Strategic Alliance Agreement</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 18, 2013, we entered into a Strategic
Alliance Agreement (the “Agreement”) with PCCA. Under the Agreement, PCCA has agreed that during the term of the Agreement,
it will not introduce any of PCCA’s members or customers meeting certain criteria (the “Member/Customers”) to
any third party whereby such third party licenses or otherwise acquires the intellectual property rights of such Member/Customer,
without first presenting such an opportunity to the Company. PCCA may, but is not required to, present such opportunities to the
Company, use reasonable efforts to facilitate an introductory meeting between the Member/Customer and the Company, and to further
provide certain key technical assistance to a potential development project associated with the Member/Customer’s intellectual
property rights. In the event the Company and a Member/Customer introduced to the Company by PCCA enter into a commercial agreement
for the license or acquisition of the intellectual property rights owned by the Member/Customer, PCCA will be entitled to
receive certain cash fees up to an aggregate of $100,000, as well as a commission based on net sales, if any, generated by the
Company as a result of the acquired intellectual property rights. The Agreement has a term of one year and is automatically extended
for successive one year periods unless either party gives the other written notice of non-renewal.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Buderer Asset Purchase Agreement</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On June 11, 2013, we acquired intellectual property
rights related to certain proprietary innovations from the compounding pharmacy operations of Buderer Drug Company, Inc. (“Buderer”)
pursuant to an Asset Purchase Agreement (the “APA”). In addition, the Company has a right of first refusal on additional
Buderer intellectual property and drug development opportunities. The APA provides that Buderer 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.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In consideration for the acquisition of the
intellectual property rights, the Company is obligated to make the following payments to Buderer: (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 Investigational New Drug application (“IND”) with
the U.S. Food and Drug Administration for the first product arising from the acquired intellectual property (if any); and (3) 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 the Company does not file an IND for any product based on the acquired intellectual property within five
years of the date of the APA, Buderer may terminate the agreement and the Company shall re-assign the acquired technology to Buderer.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 4. STOCKHOLDERS’ EQUITY AND STOCK-BASED
COMPENSATION</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Common Stock</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with the Public Offering, after
the effectiveness of the Registration Statement on February 7, 2013, the Company effected a one-for-five reverse stock split of
its common stock and on February 8, 2013, the Company's common stock began trading on The NASDAQ Capital Market on a split-adjusted
basis. All information included in this Quarterly Report has been adjusted to reflect the effect of the one-for-five reverse stock
split.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2013, the Company issued 219 shares
of common stock at a price of $4.00 per share. The shares of common stock were issued to net settle total common stock options
to purchase 1,030 shares of common stock pursuant to a cashless exercise provision.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During February and March 2013, the Company
made payments totaling $191 in connection with cancelled, fractional share amounts of common stock (35 common stock share equivalents)
in connection with the reverse stock split effected February 7, 2013.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 13, 2013, the Company closed the
underwritten Public Offering of 1,840,000 shares of its common stock at a per share price to the public of $5.25, and received
net proceeds of $8,140,435 after deducting underwriter fees and commissions and other offering expenses. The underwriters also
exercised their option to purchase an additional 276,000 shares of common stock from the Company at $5.25 per share to cover over-allotments
on March 14, 2013. Net cash proceeds from the exercise of the over-allotment option were $1,316,116. On February 7, 2013, the Company
entered into an Underwriting Agreement (the “Underwriting Agreement”) with MDB Capital Group, LLC. As contemplated
by the Underwriting Agreement, at the closing of the Public Offering and the over-allotment exercise, the underwriters received
warrants (the “Warrants”) to purchase an aggregate of 179,860 shares, or 8.5% of the number of shares sold in the offering
(including 8.5% of shares sold pursuant to their over-allotment option). The Warrants are exercisable at $5.25 per share (100%
of the price of the common stock sold in the offering), commencing on the effective date of the offering and expiring five years
from the effective date of the offering.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During June 2013, the Company issued 33,333
restricted shares of common stock to Dr. Robert Kammer, a director, valued at $243,333, in consideration for consulting services
provided during the year ended December 31, 2012 and through June 30, 2013.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During June 2013, the Company issued 40,000
shares of common stock to Mark Baum, the Company’s CEO and a director, related to vesting of restricted stock units (“RSUs”).</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Preferred Stock</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At June 30, 2013, the Company had 5,000,000
shares of preferred stock, $0.001 par value, authorized and no shares of preferred stock issued and outstanding.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Stock Option Plan</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 17, 2007, the Company’s Board
of Directors and stockholders adopted the Company’s 2007 Incentive Stock and Awards Plan, which was subsequently amended
on November 5, 2008, February 26, 2012, July 18, 2012 and May 2, 2013 (as amended, the “Plan”). As of June 30, 2013,
the Plan provides for the issuance of a maximum of an aggregate of 2,400,000 shares of the Company’s common stock. The purpose
of the Plan is to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services
are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in the Company’s
development and financial success. Under the Plan, the Company is authorized to issue incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code, non-qualified stock options and restricted stock. The Plan is administered by the
Compensation Committee of the Company’s Board of Directors.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of the Plan activity with respect
to options to purchase common stock for the six months ended June 30, 2013 is as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Number of shares</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted Avg.</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Exercise Price</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted Avg. Remaining</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Contractual Life</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Aggregate</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Intrinsic Value</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Options outstanding - January 1, 2013</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">905,806</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">5.26</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Options granted</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">519,353</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td>$ </td>
<td style="text-align: right"><font style="font-size: 8pt">6.95</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Options exercised</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">(1,030</font></td>
<td nowrap="nowrap"><font style="font-size: 8pt">)</font></td>
<td style="text-align: right"> </td>
<td>$</td>
<td style="text-align: right"><font style="font-size: 8pt">4.00</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Options cancelled/forfeit</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">(151,500</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td>$</td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">10.91</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="padding-bottom: 1.5pt"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="padding-bottom: 1.5pt"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 52%; padding-bottom: 3pt"><font style="font-size: 8pt">Options outstanding - June 30, 2013</font></td>
<td style="width: 1%; padding-bottom: 3pt; text-align: right"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double"> </td>
<td style="width: 9%; border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">1,272,629</font></td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 3pt"> </td>
<td style="width: 1%; padding-bottom: 3pt; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.27</font></td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 3pt"> </td>
<td style="width: 1%; padding-bottom: 3pt; text-align: right"> </td>
<td style="width: 1%"> </td>
<td style="width: 9%; padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.81</font></td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 3pt"> </td>
<td style="width: 1%; padding-bottom: 3pt; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">4,458,714</font></td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 3pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Options exercisable</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">648,888</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">4.15</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">4.87</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">3,044,856</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Options vested and expected to vest</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">1,210,255</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.21</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.76</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">4,317,328</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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 28,
2013, based on the closing price of the Company’s common stock of $8.48 on that date.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In April 2013, the Company granted options to
employees of the Company to acquire 120,000 shares of the Company’s common stock under the Plan, each with an exercise price
of $6.00, the current market price of the Company’s common stock at the grant date. The options each have 10-year terms and
vest quarterly over three years.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In April 2013, the Company granted options to
an employee of the Company to acquire 51,675 shares of the Company’s common stock under the Plan. The options have an exercise
price of $9.00, the current market price of the Company’s common stock at the grant date, a 10-year term and vest over a
three year period, such that 33% of the options vest on the first anniversary of the grant date and the remaining 67% of the options
vest quarterly in equal installments thereafter over two years.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2013, the Company granted options to
Mark Baum, its CEO, to acquire 180,000 shares of the Company’s common stock under the Plan, in accordance with the terms
of the Company’s amended and restated employment agreement with Mr. Baum. The options have an exercise price of $8.99, the
current market price of the Company’s common stock at the grant date, a 10-year term and vest quarterly over three years.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The table below illustrates the fair value per
share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted
to employees:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Six Months Ended</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>June 30, 2013</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 89%"><font style="font-size: 8pt">Weighted-average fair value of options granted</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: center"><font style="font-size: 8pt">6.90</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Expected terms (in years)</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">5.8</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Expected volatility</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">123%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Risk-free interest rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">0.86 %-1.00%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Dividend yield</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Effective April 1, 2012, the Company entered into an advisory agreement
with director Dr. Robert J. Kammer (the “Advisory Agreement”) pursuant to which Dr. Kammer provides certain services
to the Company in addition to his services as a director, including, but not limited to, providing management and advice regarding
the operations of the Company’s clinical trials and assistance in the identification of new drug delivery technologies. As
part of Dr. Kammer’s compensation under the Advisory Agreement, the Company granted to Dr. Kammer on April 1, 2012 an option
to purchase up to 60,000 shares of the Company’s common stock at an exercise price of $4.50 per share under the Plan. The
option terminates on March 31, 2017 and vests over a two year period, with 15,000 options vested immediately upon issuance and
an additional 1,875 options vesting monthly for the next twenty four months thereafter. In accordance with accounting guidance
for stock-based compensation to consultants, the unvested portion of the option will be remeasured on an interim basis until the
termination of the Advisory Agreement. The Advisory Agreement will terminate on the earlier of the completion of the services or
the second anniversary of the date of the agreement. As of June 30, 2013, the remeasured fair value of the unvested portion of
the stock option, based on the Black-Scholes-Merton pricing model, was $129,481.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On January 13, 2013, the Company entered into
a statement of work agreement with a clinical development consultant (the “SOW Agreement”). In partial consideration
for the services provided under the SOW Agreement, the Company issued an option to purchase up to 11,428 shares of the Company’s
common stock at an exercise price of $8.75 per share. The option will terminate on January 13, 2017 and vests over an eighteen
month period, with approximately 635 options vesting monthly for eighteen months beginning in February 2013. The remeasured fair
value of the unvested portion of the stock option as of June 30, 2013, based on the Black-Scholes-Merton option pricing model,
was $50,901.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2013, the Company granted 25,000 options
to a consultant with an exercise price of $8.90 equal to the current market price of the Company’s common stock at the grant
date. The options have a 3-year term and vest in full in August 2013, following completion of certain services. As of June 30,
2013, the remeasured fair value of the stock option, based on the Black-Scholes-Merton option pricing model, was $145,773. The
amount of unamortized stock-based compensation that has not been expensed related to the unvested option grant is $80,175.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2013, Dr. Balbir Brar resigned as President,
but concurrent with his resignation entered into a senior advisory consultant agreement that allowed for his options related to
his service to the Company as President to continue vesting as long as he continued service to the Company as a consultant. His
original option agreement was modified to allow for the vesting to continue as a result of his service to the Company as a consultant.
The unvested portion of the options prior to his resignation were treated as cancelled as of the date of the modification and subsequently
re-issued. As of June 30, 2013, the remeasured fair value of the unvested portion of the stock option, based on the Black-Scholes-Merton
option pricing model, was $808,591.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of June 30, 2013, there was approximately
$3,133,000 of total unrecognized compensation expense related to unvested stock options under the Plan. That expense is expected
to be recognized over the weighted-average remaining vesting period of 2.13 years.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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, and 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 the 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: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The 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: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Six Months Ended</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>June 30, 2013</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 89%"><font style="font-size: 8pt">Weighted-average fair value of options granted</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: center"><font style="font-size: 8pt">6.73</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Expected terms (in years)</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">2.5-4.25</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Expected volatility</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">116% - 372%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Risk-free interest rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">0.30%-1.04%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Dividend yield</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table summarizes information about
stock options outstanding and exercisable at June 30, 2013:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td colspan="2" style="padding-bottom: 1.5pt"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="10" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Options Outstanding</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Options Exercisable</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Weighted</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Average</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Weighted</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Weighted</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Remaining</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Average</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Average</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Number</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Contractual</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Exercise</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Number</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Exercise</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Range of Exercise Prices</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Outstanding</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Life in Years</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Price</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Exercisable</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Price</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 23%"><font style="font-size: 8pt">2.40 - 3.20</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">250,000</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">6.07</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">2.80</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">225,000</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">2.76</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">$</font></td>
<td><font style="font-size: 8pt">3.60 - $4.50</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">624,643</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">3.63</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">4.07</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">409,832</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">4.19</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">$</font></td>
<td><font style="font-size: 8pt">6.00 - $9.00</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">383,103</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">9.20</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">8.08</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">3,174</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">8.75</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">$</font></td>
<td><font style="font-size: 8pt">10.75</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">7,603</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">4.46</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">10.75</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">3,802</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">10.75</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">28.00 - $80.00</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">7,280</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">6.63</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">40.01</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">7,080</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">40.35</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">1,272,629</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td> </td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.81</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.27</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">648,888</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">4.15</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The stock-based compensation for stock options
was $461,166 and $801,396 during the three and six months ended June 30, 2013, respectively.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Restricted Stock Units</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Restricted stock unit, or RSU, awards are granted
subject to certain restrictions, including performance and market based conditions. The grant-date fair value of the RSUs, which
has been determined based upon the market value of the Company’s shares on the grant date, is expensed over the vesting period.
Unvested portions of RSUs issued to consultants are remeasured on an interim basis until vesting criteria is met. On May 2, 2013,
the Board of Directors of the Company amended and restated the Plan to provide for the issuance of restricted stock units under
the Plan.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On May 2, 2013, the Company entered into an
amended and restated employment agreement with its CEO, Mark Baum. Among other things, the amended and restated employment agreement
provides for the issuance of 1,250,000 RSUs to Mr. Baum, pursuant to the Plan. Of these RSUs, 200,000 vest on the third anniversary
of the RSU grant based on continued service to the Company and the remaining 1,050,000 RSUs will vest based on the satisfaction
of certain market-based and continued service conditions (the “Baum Performance Equity Award”). The Baum Performance
Equity Award vest three years from the date of grant contingent upon the satisfaction of certain market-based vesting criteria
during the three year period. The market-based vesting criteria are separated into five equal tranches and require that the Company
achieves and maintains certain stock price targets ranging from $10 per share to $30 per share during the three year period following
the grant date. With certain limited exceptions, Mr. Baum must be employed with the Company on the third anniversary of the grant
date in order for the Baum Performance Equity Award to vest. These market-based vesting conditions are further described below:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 30%; border-bottom: black 1.5pt solid; text-align: justify"><font style="font-size: 8pt"><b>Tranche</b></font></td>
<td style="width: 1%; padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="width: 38%; border-bottom: black 1.5pt solid; text-align: justify"><font style="font-size: 8pt"><b>Number of Shares</b></font></td>
<td style="width: 1%; padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="width: 30%; border-bottom: black 1.5pt solid; text-align: justify"><font style="font-size: 8pt"><b>Target Share Price</b></font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 8pt">Tranche 1</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">19.05% of the Baum Performance Equity Award granted</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">$10.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: white">
<td style="text-align: justify"><font style="font-size: 8pt">Tranche 2</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">19.05% of the Baum Performance Equity Award granted</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">$15.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 8pt">Tranche 3</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">19.05% of the Baum Performance Equity Award granted</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">$20.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: white">
<td style="text-align: justify"><font style="font-size: 8pt">Tranche 4</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">19.05% of the Baum Performance Equity Award granted</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">$25.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 8pt">Tranche 5</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">23.80% of the Baum Performance Equity Award granted</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">$30.00 or greater</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">For each respective tranche to vest the following
conditions must be met: (i) the Company’s common stock must have an official closing price at or above the Target Share Price
for the respective tranche (each such date, a “Trigger Date”); (ii) during the period that includes the Trigger Date
and the immediately following 19 trading days (the “Measurement Period”), the arithmetic mean of the 20 closing
prices of the Company’s common stock during the Measurement Period must be at or above the Target Share Price for such tranche;
and (iii) with certain limited exceptions, Mr. Baum must be in continuous service with the Company through the third anniversary
of the grant date. Any unvested RSUs under the Baum Performance Equity Award will be forfeited on the third anniversary of the
grant date.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Under the terms of the employment agreement
with Mr. Baum, the earning and issuance of any shares under the Baum Performance Equity Award that would exceed the number of shares
available for grant and/or the applicable annual per person grant limit for performance-based restricted stock units under the
Plan are subject to approval by the Board of Directors and the Company’s stockholders of an increase in the number of shares
available for grant and the applicable annual per person grant limit for performance-based restricted stock units under the Plan.
The Board approved such increases on May 2, 2013. The current per person grant limit under the Plan for grants of performance-based
restricted stock units is 600,000 shares. As a result, if such an amendment to the Plan is not approved by the Company’s
stockholders, Mr. Baum will only be entitled to receive a maximum of 600,000 RSUs pursuant to the Baum Performance Equity Award.
Effective upon approval of a Plan amendment by the Company’s stockholders and subsequent grant of the remaining 450,000 RSUs
pursuant to the Baum Performance Equity Award, Mr. Baum has agreed to cancel 120,000 unvested RSUs previously granted to him in
July 2012.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The initial fair value of the 200,000 RSUs and
600,000 RSUs pursuant to the Baum Performance Equity Award granted to Mr. Baum was $3,515,090 and as of June 30, 2013, the amount
of unamortized stock based compensation that has not been expensed related to the unvested RSUs grants is $3,329,796. The 600,000
RSUs pursuant to the Baum Performance Equity Award were valued using a Monte Carlo Simulation with a three year life, 75% volatility
and a risk free interest rate of 0.30%.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On May 24, 2013, the Company granted 100,000
RSUs to a consultant that will vest based on the satisfaction of certain market-based conditions subject to the consultant’s
continued service, among other things. These market-based vesting conditions are further described below:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 30%; border-bottom: black 1.5pt solid"><font style="font-size: 8pt"><b>Tranche</b></font></td>
<td style="width: 1%; padding-bottom: 1.5pt"> </td>
<td style="width: 38%; border-bottom: black 1.5pt solid"><font style="font-size: 8pt"><b>Number of Shares</b></font></td>
<td style="width: 1%; padding-bottom: 1.5pt"> </td>
<td style="width: 30%; border-bottom: black 1.5pt solid"><font style="font-size: 8pt"><b>Target Share Price</b></font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Tranche 1</font></td>
<td> </td>
<td><font style="font-size: 8pt">20,000 shares</font></td>
<td> </td>
<td><font style="font-size: 8pt">$10.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: white">
<td><font style="font-size: 8pt">Tranche 2</font></td>
<td> </td>
<td><font style="font-size: 8pt">20,000 shares</font></td>
<td> </td>
<td><font style="font-size: 8pt">$15.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Tranche 3</font></td>
<td> </td>
<td><font style="font-size: 8pt">20,000 shares</font></td>
<td> </td>
<td><font style="font-size: 8pt">$20.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: white">
<td><font style="font-size: 8pt">Tranche 4</font></td>
<td> </td>
<td><font style="font-size: 8pt">20,000 shares</font></td>
<td> </td>
<td><font style="font-size: 8pt">$25.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Tranche 5</font></td>
<td> </td>
<td><font style="font-size: 8pt">20,000 shares</font></td>
<td> </td>
<td><font style="font-size: 8pt">$30.00 or greater</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">For each respective tranche to vest the following
conditions must be met: (i) the Company’s common stock must have an official closing price at or above the Target Share Price
for the respective tranche (each such date a “Trigger Date”); (ii) during the period that includes the Trigger Date
and the immediately following 19 trading days (the “Measurement Period”), the arithmetic mean of the 20 closing
prices during the Measurement Period must be at or above the Target Share Price for such tranche ((i) and (ii), the “Stock
Price Conditions”); and (iii) with certain limited exceptions, 50% of the RSUs subject to a tranche will vest on the quarterly
anniversary of the grant date following the satisfaction of the Stock Price Conditions with respect to that tranche, subject to
the consultant being in continuous service with the Company on such quarterly anniversary and the remaining 50% shall vest on the
second anniversary of the grant date if (a) the Stock Price Conditions have been satisfied with respect to that tranche prior to
the second anniversary of the grant date and (b) the consultant is and has been in continuous service with the Company on the second
anniversary of the grant date. All unvested RSUs will be forfeited on the second anniversary of the grant date.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The initial value of the 100,000 RSUs with market-based
vesting conditions granted to the consultant was $288,000, and as of June 30, 2013 the remeasured fair value of those RSUs was
$203,520. The amount of unamortized stock-based compensation that has not been expensed related to the unvested RSU grant is $195,040.
The 100,000 RSUs are valued using a Monte Carlo Simulation with a 2 year life (based on the grant date), 80% volatility and risk
free interest rates of 0.26%-0.36%.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In June 2013, the Board of Directors approved
a one-time grant of 6,865 RSUs (34,325 RSUs total) to non-employee directors with an aggregate fair value of $271,854. The RSUs
vest in full 13 months from the date of grant subject to the director being in continuous service with the Company. Once vesting
conditions have been achieved, the RSUs will remain restricted until the directors resign.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of the Company’s RSU activity
and related information for the six months ended June 30, 2013 is as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Number of RSUs</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Weighted Average Grant Date Fair Value</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%"><font style="font-size: 8pt">RSUs outstanding - January 1, 2013</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">200,000</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">3.25</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">RSUs granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">934,325</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td>$</td>
<td style="text-align: right"><font style="font-size: 8pt">4.36</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">RSUs vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">(40,000</font></td>
<td nowrap="nowrap"><font style="font-size: 8pt">)</font></td>
<td style="text-align: right"> </td>
<td>$ </td>
<td style="text-align: right"><font style="font-size: 8pt">3.25</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">RSUs cancelled</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Balance at June 30, 2013</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">1,094,325</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">4.20</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 18, 2012, a consultant was issued RSUs
(40,000 shares) valued at $130,000, and as of June 30, 2013, the remeasured fair value of those RSUs was $339,200.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of June 30, 2013, the total unrecognized
compensation expense related to unvested RSUs (including the 600,000 Baum PSUs authorized under the Plan) was approximately $4,189,000
(including recognized and unrecognized expenses of the remeasured fair value of consultant RSUs) which are expected to be recognized
over a weighted-average period of 2.49 years, based on estimated vesting schedules. The stock-based compensation for RSU’s
was $302,094 and $297,019 during the three and six months ended June 30, 2013, respectively.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Warrants</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">From time to time, the Company issues warrants
to purchase shares of the Company’s common stock to investors, note holders, underwriters and to non-employees for services
rendered or to be rendered in the future.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2013, the Company issued a warrant
to purchase 30,000 shares of the Company’s common stock to a consultant with an exercise price of $5.25 per share. The warrants
expire three years following the issuance date, and vest as follows: 10,000 shares vested immediately upon execution of the consulting
agreement, and the remaining shares will vest evenly (4,000 shares) on each of the five monthly periods following the date of the
consulting agreement provided the consultant continues to provide services to the Company as of the applicable vesting date.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of the activity of the warrants for
the six months ended June 30, 2013 is as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Number of Shares Subject to Warrants Outstanding</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted Avg.</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Exercise Price</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%"><font style="font-size: 8pt">Warrants outstanding - January 1, 2013</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"> </td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">556,872</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">7.66</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Granted</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">209,860</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td>$ </td>
<td style="text-align: right"><font style="font-size: 8pt">5.25</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Exercised</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Expired</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">(5,682</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td>$</td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">176.00</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Warrants outstanding and exercisable - June 30, 2013</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">761,050</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.74</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Weighted average remaining contractual life of the outstanding warrants in years - June 30, 2013</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">2.51</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The fair value of each warrant is estimated
on the date of grant using the Black-Scholes-Merton option pricing model. The table below illustrates the fair value per share
determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing the warrants issued:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 89%"><font style="font-size: 8pt">Weighted-average fair value of warrants granted</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: center"><font style="font-size: 8pt">5.10</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Expected terms (in years)</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">2.7-5</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Expected volatility</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">120%-346%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Risk-free interest rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">0.32%-0.92%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Dividend yield</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">A list of the warrants outstanding as of June 30, 2013 is included
in the table below:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="8" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Warrants Outstanding</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="4" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Warrants Exercisable</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Warrants</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Exercise</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Warrants</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt"><b>Expiration</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt"><b>Warrant Series</b></font></td>
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Issue Date</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Outstanding</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Price</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Exercisable</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Date</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 44%"><font style="font-size: 8pt">DermaStar</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 8pt">4/25/2012</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">48,262</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">5.93</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">48,262</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 10%; text-align: right"><font style="font-size: 8pt">4/25/2015</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">April PPM</font></td>
<td style="text-align: right"><font style="font-size: 8pt">4/25/2012</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">502,928</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">5.93</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">502,928</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"><font style="font-size: 8pt">4/25/2015</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Underwriter Warrants</font></td>
<td style="text-align: right"><font style="font-size: 8pt">2/7/2013</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">179,860</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">5.25</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"><font style="font-size: 8pt">2/7/2018</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">IR Consultant</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">2/28/2013</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">30,000</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">5.25</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">26,000</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">2/28/2016</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">761,050</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.74</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">577,190</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">The stock-based compensation for warrants was $82,070 and $157,630
during the three and six months ended June 30, 2013, respectively.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Accounts payable and accrued expenses consisted
of the following:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>June 30,</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>December 31,</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%"><font style="font-size: 8pt">Accounts payable</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">764,676</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">286,686</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Accrued offering costs</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">185,337</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Deferred rent</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">2,477</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Other accrued expenses</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">15,248</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">21,440</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Stock-based compensation accrual</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">88,450</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">139,444</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Total accounts payable and accrued expenses</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">868,374</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">635,384</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">There are 10,000 and 20,000 shares of our restricted
common stock underlying the stock-based compensation accrual at June 30, 2013 and December 31, 2012, respectively. The stock-based
compensation related to restricted common stock issuances and accruals was $149,806 and $192,339 during the three and six months
ended June 30, 2013, respectively.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 2. SHORT-TERM RESTRICTED INVESTMENT</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Short-term restricted investment at June 30,
2013 consists of a certificate of deposit, which is classified as held-to-maturity. At June 30, 2013, the fair value of this investment
approximated its amortized cost basis.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At June 30, 2013, the certificate of deposit
of $50,034 was classified as a current asset. The certificate of deposit is required as collateral under the Company’s corporate
credit card agreement and automatically renews every twelve months.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>NOTE 1. OVERVIEW AND BASIS OF PRESENTATION</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Company and Background</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Imprimis Pharmaceuticals, Inc. (“Imprimis”,
the “Company”, “we”, “us”, or “our”) is a specialty pharmaceutical company focused
on the commercial development of compounded drug formulations. Imprimis expects to use its proprietary Accudel™ drug delivery
technologies, proprietary drug formulations, and its exclusive relationship with Professional Compounding Centers of America, Inc.
(“PCCA”), to identify pharmaceutical development opportunities where there are significant unmet medical needs.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s most near term drug candidate,
Impracor™, utilizes its patented Accudel topical cream formulation to enable highly targeted site-specific treatment. Impracor,
which is a Phase 3 clinical trial pain product candidate, delivers the active pharmaceutical ingredient (API), ketoprofen, a non-steroidal
anti-inflammatory drug (NSAID), through the skin directly into the underlying tissues where the drug exerts its localized anti-inflammatory
and analgesic effects.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Basis of Presentation</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 28, 2012, the Company changed its
name from Transdel Pharmaceuticals, Inc. to Imprimis Pharmaceuticals, Inc. All prior references to Transdel Pharmaceuticals, Inc.
have been changed to Imprimis Pharmaceuticals, Inc. to reflect the change. On February 28, 2012, the Company effected a one-for-eight
reverse stock split and on February 7, 2013, the Company effected a one-for-five reverse stock split. All share and per share amounts
and calculations in this report reflect the effects of these reverse stock splits.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Imprimis has prepared the accompanying unaudited
condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of
America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2013. For further information, refer to the Company’s audited consolidated
financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2012.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Principles of Consolidation</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 17, 2007, Imprimis entered
into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) by and among Imprimis, Transdel Pharmaceuticals
Holdings, Inc., a privately held Nevada corporation (“Transdel Holdings”), and Trans-Pharma Acquisition Corp., a newly
formed, wholly-owned Delaware subsidiary of Imprimis (“Acquisition Sub”). Upon closing of the merger transaction contemplated
under the Merger Agreement (the “Merger”), Acquisition Sub merged with and into Transdel Holdings, and Transdel Holdings,
as the surviving corporation, became a wholly-owned subsidiary of Imprimis. As a result of the Merger, the former owners of Transdel
Holdings became the controlling stockholders of Imprimis. Accordingly, the merger of Transdel Holdings and Imprimis is a reverse
merger that has been accounted for as a recapitalization of Transdel Holdings.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective on September 17, 2007, and for
all reporting periods thereafter, Imprimis’ operating activities, including any prior comparative period, include only those
of Transdel Holdings. All references to share and per share amounts in the accompanying consolidated financial statements and footnotes
have been restated to reflect the aforementioned share exchange. All significant intercompany accounts and transactions have been
eliminated in consolidation.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On June 20, 2011, Transdel Holdings was merged
with Imprimis Pharmaceuticals, Inc., at which time Transdel Holdings ceased as a corporation, and Imprimis Pharmaceuticals, Inc.
remains as the sole surviving corporation.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Development Stage Enterprise</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is a development stage company as
defined under Financial Accounting Standards Board (“FASB”) guidance. All losses accumulated since inception have been
considered as part of the Company’s development stage activities.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">These condensed consolidated financial statements
contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is a development
stage enterprise and has incurred recurring operating losses, has had negative operating cash flows and has not recognized any
significant revenues since July 24, 1998 (Inception). In addition, the Company has a deficit accumulated during the development
stage of approximately $27.8 million at June 30, 2013, and anticipates incurring further losses through the remainder of the fiscal
year 2013 and beyond. The Company has not yet generated significant sales revenue and has funded its operating losses to date through
debt and equity offerings and borrowings under its line of credit. The Company believes that its existing cash and cash equivalents
will be sufficient to cover its cash flow requirements for at least the next twelve months.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Research and Development</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company expenses all costs related to research
and development as they are incurred. Research and development expenses consist of expenses incurred in performing research and
development activities including salaries and benefits, and other overhead expenses, clinical trials, contract services and outsourced
contracts.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> <b> </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 7.5pt 0 0"><b>Intellectual Property  </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 7.5pt 0 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 we have not identified an alternative future use for the acquired
rights, and are capitalized in situations where it 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: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Revenue Recognition and Deferred Revenue</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company will recognize revenues when all
of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred;
(3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. The Company believes it
will not generate significant revenues until one or more of its drug candidates are approved by the U.S. Food and Drug Administration
(“FDA”) and the Company is able to commercialize one or more of its product candidates. Also, effective sales and marketing
support must be in place for either the drug candidates or any other products the Company may develop in order to generate any
revenues. The FDA approval process is highly uncertain and the Company cannot estimate when it will generate revenues at this time
from sales of its products.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Product Revenues</i></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Determination of criteria (3) and (4) will
be based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability
of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments will
be provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has
not been delivered or for which services have not been rendered or are subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or services have been rendered or no refund will be required.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>License Revenues</i></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">License arrangements may consist of non-refundable
upfront license fees, data transfer fees, research reimbursement payments, exclusive licensed rights to patented or patent pending
compounds, technology access fees, and various performance or sales milestones. These arrangements can be multiple element arrangements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Non-refundable, up-front fees that are not contingent
on any future performance by us, and require no consequential continuing involvement on our part, are recognized as revenue when
the license term commences and the licensed data, technology and/or compound is delivered. Such deliverables may include physical
quantities of compounds, design of the compounds and structure-activity relationships, the conceptual framework and mechanism of
action, and rights to the patents or patents pending for such compounds. We defer recognition of non-refundable upfront fees if
we have continuing performance obligations without which the technology, right, product or service conveyed in conjunction with
the non-refundable fee has no utility to the licensee that is separate and independent of our performance under the other elements
of the arrangement. In addition, if we have required continuing involvement through research and development services that are
related to our proprietary know-how and expertise of the delivered technology, or can only be performed by us, then such up-front
fees are deferred and recognized over the period of continuing involvement. Guaranteed minimum annual royalties are recognized
on a straight-line basis over the applicable term.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During three and six months ended June 30, 2013,
the Company recorded $2,500 and $5,000 in revenues, respectively, for non-refundable royalty advances. 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 will receive $10,000 as a guaranteed minimum
royalty amount for fiscal 2013 and, if applicable, additional royalty payments based on a percent (generally, 5%-7%) of net sales
of any products covered under the license agreement. The license agreement with resolutionMD, LLC, unless terminated earlier, 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 2013 fiscal year.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Income Taxes</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for income taxes under
the provisions of Accounting Standards Codification (“ASC”) 740, “Income Taxes”, or ASC 740. As of June
30, 2013, there were no unrecognized tax benefits included in the condensed consolidated balance sheets that would, if recognized,
affect the effective tax rate. The Company’s practice is to recognize interest and/or penalties related to income tax matters
in income tax expense. The Company had no accrual for interest or penalties in its condensed consolidated balance sheets at June
30, 2013 and December 31, 2012, and has not recognized interest and/or penalties in the consolidated statements of operations for
the periods ended June 30, 2013 and 2012. The Company is subject to taxation in the United States and California. The Company’s
tax years for 2000 and forward are subject to examination by the federal and state tax authorities due to the carry forward of
unutilized net operating losses.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Cash and Cash Equivalents</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Cash equivalents include short-term, highly
liquid investments with maturities of three months or less at the time of acquisition.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Concentrations of Credit Risk</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company places its cash with financial institutions
deemed by management to be of high credit quality. The Federal Deposit Insurance Corporation (“FDIC”) provides basic
deposit coverage with limits to $250,000 per owner. At June 30, 2013, the Company had approximately $17.7 million in cash deposits
in excess of FDIC limits.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Deferred Offering Costs</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 25, 2012, the Company filed with the
Securities and Exchange Commission a registration statement on Form S-1 (as amended, the “Registration Statement”)
in connection with an underwritten public offering of its common stock (the “Public Offering”). At December 31, 2012,
the Company had deferred offering costs of $596,281 for legal, accounting and other expenses directly related to the Public Offering.
The Public Offering closed on February 13, 2013 (see Note 4), and these deferred offering costs and any other costs directly associated
with the Public Offering subsequent to December 31, 2012 were netted against the cash proceeds to the Company arising from the
Public Offering. As a result, there were no deferred offering costs at June 30, 2013.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Furniture and Equipment</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Furniture and equipment is stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of three to
five years.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Deferred Rent</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for rent expense related
to its operating leases by determining total minimum rent payments on the leases over their respective periods and recognizing
the rent expense on a straight-line basis. The difference between the actual amount paid and the amount recorded as rent expense
in each fiscal year is recorded as an adjustment to deferred rent.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Fair Value Measurements</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Fair value measurements are determined based
on the assumptions that market participants would use in pricing an asset or liability. GAAP establishes a hierarchy for inputs
used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring
that the most observable inputs be used when available. The established fair value hierarchy prioritizes the use of inputs used
in valuation methodologies into the following three levels:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 3%; text-align: justify"><font style="font-size: 8pt">·</font></td>
<td style="width: 97%; text-align: justify"><font style="font-size: 8pt">Level 1: Applies to assets or liabilities for which there are quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"><font style="font-size: 8pt">·</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">Level 2: Applies to assets or liabilities for which there are significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"><font style="font-size: 8pt">·</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">Level 3: Applies to assets or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At June 30, 2013 and December 31, 2012, the
Company did not have any financial assets or liabilities which are measured on a recurring basis. At June 30, 2013 and December
31, 2012, the Company’s financial instruments include cash and cash equivalents, a restricted short-term investment, accounts
payable and accrued expenses, accrued Phase 3 expenses and accrued payroll and related liabilities. The carrying amount of these
financial instruments, except for the restricted short-term investment, approximates fair value due to the short-term maturities
of these instruments. The Company’s restricted short-term investment is carried at amortized cost which approximates fair
value.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Stock-Based Compensation</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">All stock-based payments to employees, including
grants of stock options to employees, directors and consultants, warrants and restricted stock grants, are recognized in the condensed
consolidated financial statements based upon their fair values.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company's accounting policy for equity instruments
issued to consultants and vendors in exchange for goods and services follows FASB guidance. As such, the value of the applicable
stock-based compensation is periodically remeasured and income or expense is recognized during their vesting terms. The measurement
date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for
performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete.
In the case of equity instruments issued to consultants, the fair value of the equity instrument is primarily recognized over the
term of the consulting agreement. In accordance with FASB guidance, an asset acquired in exchange for the issuance of fully vested,
nonforfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once
the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of nonforfeitable equity
instruments issued for future consulting services as prepaid consulting fees in its condensed consolidated balance sheets.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recorded stock-based compensation
related to equity instruments granted to employees, directors and consultants as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 52%"><font style="font-size: 8pt">Employees - selling, general and administrative</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">378,895</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">115,634</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">464,898</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">118,224</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Employees - research and development</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">44,619</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">40,866</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">111,750</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">82,412</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Directors - selling, general and administrative</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">45,458</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">493,047</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">248,250</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">567,415</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Consultants - selling, general and administrative</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">345,605</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">79,987</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">505,527</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">79,987</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Consultants - research and development</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">180,559</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">117,959</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt; padding-left: 9pt"><font style="font-size: 8pt">Total</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">995,136</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">729,534</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">1,448,384</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">848,038</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><b> </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Basic and Diluted Net Loss per Common Share</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic net loss per common share is computed
by dividing net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding
during the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders for the
period by the weighted average number of common and common equivalent shares, such as stock options and warrants outstanding during
the period.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic and diluted net loss applicable to common
stock per share is computed using the weighted average number of shares of common stock outstanding during the period. Common stock
equivalents (using the treasury stock or, “if converted” method) from convertible notes, preferred stock, stock options,
unvested restricted stock units (“RSUs”) and warrants were 3,138,004 and 1,476,987 at June 30, 2013 and 2012, respectively,
and are excluded from the calculation of diluted net loss per share for all periods presented because the effect is anti-dilutive.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table shows the computation of
basic and diluted loss per share of common stock for the three and six months ended June 30, 2013 and 2012:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 52%"><font style="font-size: 8pt">Net loss</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(2,218,052</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(1,305,593</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(3,683,533</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(2,684,681</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Deemed dividend to preferred stockholders</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">(200,000</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">(200,000</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Numerator – (loss) attributable to common stockholders</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(2,218,052</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(1,505,593</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(3,683,533</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(2,884,681</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Denominator – weighted average</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 9pt"><font style="font-size: 8pt">number of shares outstanding, basic and diluted</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">8,890,668</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">3,874,554</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">8,342,497</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">2,469,171</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt"><b>Net Loss per share, basic and diluted</b></font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(0.25</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(0.39</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(0.44</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(1.17</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Use of Estimates</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The preparation of financial statements in conformity
with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during
the reporting periods. Significant estimates made by management are, among others, the valuation of contributed services, deferred
taxes and stock-based compensation issued to employees and non-employees. Actual results could differ from those estimates.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Reclassifications</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Certain prior period items and amounts have
been reclassified to conform to the classifications used to prepare the 2013 condensed consolidated financial statements. These
reclassifications had no material impact on the Company’s financial position, results of operations, or cash flows as previously
reported.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Recently Announced Accounting Pronouncements</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In July 2013, the FASB issued Accounting Standards
Update (“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. The Company intends to adopt this guidance at the beginning of its first quarter of
fiscal year 2014, and is currently evaluating the impact on its financial statements and disclosures.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Recently Adopted Accounting Pronouncements</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In December 2011, the FASB issued ASU 2011-11,
“Disclosures about Offsetting Assets and Liabilities.” This pronouncement was issued to enhance disclosure requirements
surrounding the nature of an entity’s right to offset and related arrangements associated with its financial instruments
and derivative instruments. This new guidance requires companies to disclose both gross and net information about instruments and
transactions eligible for offset in the statement of financial position and instruments and transactions subject to master netting
arrangements. This pronouncement is effective for reporting periods beginning on or after January 1, 2013. The adoption of
ASU 2011-11 did not have a material impact on our condensed consolidated financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In January 2013, the FASB issued ASU 2013-01,
“Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” This pronouncement was issued to address
implementation issues about the scope of ASU 2011-11 and to clarify the scope of the offsetting disclosures and address any
unintended consequences. This pronouncement is effective for reporting periods beginning on or after January 1, 2013. The
adoption of ASU 2013-01 did not have a material impact on our condensed consolidated financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Company and Background</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Imprimis Pharmaceuticals, Inc. (“Imprimis”,
the “Company”, “we”, “us”, or “our”) is a specialty pharmaceutical company focused
on the commercial development of compounded drug formulations. Imprimis expects to use its proprietary Accudel™ drug delivery
technologies, proprietary drug formulations, and its exclusive relationship with Professional Compounding Centers of America, Inc.
(“PCCA”), to identify pharmaceutical development opportunities where there are significant unmet medical needs.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company’s most near term drug candidate,
Impracor™, utilizes its patented Accudel topical cream formulation to enable highly targeted site-specific treatment. Impracor,
which is a Phase 3 clinical trial pain product candidate, delivers the active pharmaceutical ingredient (API), ketoprofen, a non-steroidal
anti-inflammatory drug (NSAID), through the skin directly into the underlying tissues where the drug exerts its localized anti-inflammatory
and analgesic effects.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Basis of Presentation</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 28, 2012, the Company changed its
name from Transdel Pharmaceuticals, Inc. to Imprimis Pharmaceuticals, Inc. All prior references to Transdel Pharmaceuticals, Inc.
have been changed to Imprimis Pharmaceuticals, Inc. to reflect the change. On February 28, 2012, the Company effected a one-for-eight
reverse stock split and on February 7, 2013, the Company effected a one-for-five reverse stock split. All share and per share amounts
and calculations in this report reflect the effects of these reverse stock splits.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Imprimis has prepared the accompanying unaudited
condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of
America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2013. For further information, refer to the Company’s audited consolidated
financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2012.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Principles of Consolidation</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 17, 2007, Imprimis entered
into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) by and among Imprimis, Transdel Pharmaceuticals
Holdings, Inc., a privately held Nevada corporation (“Transdel Holdings”), and Trans-Pharma Acquisition Corp., a newly
formed, wholly-owned Delaware subsidiary of Imprimis (“Acquisition Sub”). Upon closing of the merger transaction contemplated
under the Merger Agreement (the “Merger”), Acquisition Sub merged with and into Transdel Holdings, and Transdel Holdings,
as the surviving corporation, became a wholly-owned subsidiary of Imprimis. As a result of the Merger, the former owners of Transdel
Holdings became the controlling stockholders of Imprimis. Accordingly, the merger of Transdel Holdings and Imprimis is a reverse
merger that has been accounted for as a recapitalization of Transdel Holdings.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective on September 17, 2007, and for
all reporting periods thereafter, Imprimis’ operating activities, including any prior comparative period, include only those
of Transdel Holdings. All references to share and per share amounts in the accompanying consolidated financial statements and footnotes
have been restated to reflect the aforementioned share exchange. All significant intercompany accounts and transactions have been
eliminated in consolidation.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On June 20, 2011, Transdel Holdings was merged
with Imprimis Pharmaceuticals, Inc., at which time Transdel Holdings ceased as a corporation, and Imprimis Pharmaceuticals, Inc.
remains as the sole surviving corporation.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Development Stage Enterprise</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is a development stage company as
defined under Financial Accounting Standards Board (“FASB”) guidance. All losses accumulated since inception have been
considered as part of the Company’s development stage activities.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">These condensed consolidated financial statements
contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is a development
stage enterprise and has incurred recurring operating losses, has had negative operating cash flows and has not recognized any
significant revenues since July 24, 1998 (Inception). In addition, the Company has a deficit accumulated during the development
stage of approximately $27.8 million at June 30, 2013, and anticipates incurring further losses through the remainder of the fiscal
year 2013 and beyond. The Company has not yet generated significant sales revenue and has funded its operating losses to date through
debt and equity offerings and borrowings under its line of credit. The Company believes that its existing cash and cash equivalents
will be sufficient to cover its cash flow requirements for at least the next twelve months.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Research and Development</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company expenses all costs related to research
and development as they are incurred. Research and development expenses consist of expenses incurred in performing research and
development activities including salaries and benefits, and other overhead expenses, clinical trials, contract services and outsourced
contracts.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Revenue Recognition and Deferred Revenue</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company will recognize revenues when all
of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred;
(3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. The Company believes it
will not generate significant revenues until one or more of its drug candidates are approved by the U.S. Food and Drug Administration
(“FDA”) and the Company is able to commercialize one or more of its product candidates. Also, effective sales and marketing
support must be in place for either the drug candidates or any other products the Company may develop in order to generate any
revenues. The FDA approval process is highly uncertain and the Company cannot estimate when it will generate revenues at this time
from sales of its products.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Product Revenues</i></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Determination of criteria (3) and (4) will
be based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability
of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments will
be provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has
not been delivered or for which services have not been rendered or are subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or services have been rendered or no refund will be required.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>License Revenues</i></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">License arrangements may consist of non-refundable
upfront license fees, data transfer fees, research reimbursement payments, exclusive licensed rights to patented or patent pending
compounds, technology access fees, and various performance or sales milestones. These arrangements can be multiple element arrangements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Non-refundable, up-front fees that are not contingent
on any future performance by us, and require no consequential continuing involvement on our part, are recognized as revenue when
the license term commences and the licensed data, technology and/or compound is delivered. Such deliverables may include physical
quantities of compounds, design of the compounds and structure-activity relationships, the conceptual framework and mechanism of
action, and rights to the patents or patents pending for such compounds. We defer recognition of non-refundable upfront fees if
we have continuing performance obligations without which the technology, right, product or service conveyed in conjunction with
the non-refundable fee has no utility to the licensee that is separate and independent of our performance under the other elements
of the arrangement. In addition, if we have required continuing involvement through research and development services that are
related to our proprietary know-how and expertise of the delivered technology, or can only be performed by us, then such up-front
fees are deferred and recognized over the period of continuing involvement. Guaranteed minimum annual royalties are recognized
on a straight-line basis over the applicable term.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During three and six months ended June 30, 2013,
the Company recorded $2,500 and $5,000 in revenues, respectively, for non-refundable royalty advances. 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 will receive $10,000 as a guaranteed minimum
royalty amount for fiscal 2013 and, if applicable, additional royalty payments based on a percent (generally, 5%-7%) of net sales
of any products covered under the license agreement. The license agreement with resolutionMD, LLC, unless terminated earlier, 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 2013 fiscal year.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Income Taxes</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for income taxes under
the provisions of Accounting Standards Codification (“ASC”) 740, “Income Taxes”, or ASC 740. As of June
30, 2013, there were no unrecognized tax benefits included in the condensed consolidated balance sheets that would, if recognized,
affect the effective tax rate. The Company’s practice is to recognize interest and/or penalties related to income tax matters
in income tax expense. The Company had no accrual for interest or penalties in its condensed consolidated balance sheets at June
30, 2013 and December 31, 2012, and has not recognized interest and/or penalties in the consolidated statements of operations for
the periods ended June 30, 2013 and 2012. The Company is subject to taxation in the United States and California. The Company’s
tax years for 2000 and forward are subject to examination by the federal and state tax authorities due to the carry forward of
unutilized net operating losses.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Cash and Cash Equivalents</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Cash equivalents include short-term, highly
liquid investments with maturities of three months or less at the time of acquisition.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Concentrations of Credit Risk</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company places its cash with financial institutions
deemed by management to be of high credit quality. The Federal Deposit Insurance Corporation (“FDIC”) provides basic
deposit coverage with limits to $250,000 per owner. At June 30, 2013, the Company had approximately $17.7 million in cash deposits
in excess of FDIC limits.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Deferred Offering Costs</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 25, 2012, the Company filed with the
Securities and Exchange Commission a registration statement on Form S-1 (as amended, the “Registration Statement”)
in connection with an underwritten public offering of its common stock (the “Public Offering”). At December 31, 2012,
the Company had deferred offering costs of $596,281 for legal, accounting and other expenses directly related to the Public Offering.
The Public Offering closed on February 13, 2013 (see Note 4), and these deferred offering costs and any other costs directly associated
with the Public Offering subsequent to December 31, 2012 were netted against the cash proceeds to the Company arising from the
Public Offering. As a result, there were no deferred offering costs at June 30, 2013.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Furniture and Equipment</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Furniture and equipment is stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of three to
five years.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Deferred Rent</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company accounts for rent expense related
to its operating leases by determining total minimum rent payments on the leases over their respective periods and recognizing
the rent expense on a straight-line basis. The difference between the actual amount paid and the amount recorded as rent expense
in each fiscal year is recorded as an adjustment to deferred rent.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Fair Value Measurements</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Fair value measurements are determined based
on the assumptions that market participants would use in pricing an asset or liability. GAAP establishes a hierarchy for inputs
used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring
that the most observable inputs be used when available. The established fair value hierarchy prioritizes the use of inputs used
in valuation methodologies into the following three levels:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 3%; text-align: justify"><font style="font-size: 8pt">·</font></td>
<td style="width: 97%; text-align: justify"><font style="font-size: 8pt">Level 1: Applies to assets or liabilities for which there are quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"><font style="font-size: 8pt">·</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">Level 2: Applies to assets or liabilities for which there are significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"><font style="font-size: 8pt">·</font></td>
<td style="text-align: justify"><font style="font-size: 8pt">Level 3: Applies to assets or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At June 30, 2013 and December 31, 2012, the
Company did not have any financial assets or liabilities which are measured on a recurring basis. At June 30, 2013 and December
31, 2012, the Company’s financial instruments include cash and cash equivalents, a restricted short-term investment, accounts
payable and accrued expenses, accrued Phase 3 expenses and accrued payroll and related liabilities. The carrying amount of these
financial instruments, except for the restricted short-term investment, approximates fair value due to the short-term maturities
of these instruments. The Company’s restricted short-term investment is carried at amortized cost which approximates fair
value.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Stock-Based Compensation</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">All stock-based payments to employees, including
grants of stock options to employees, directors and consultants, warrants and restricted stock grants, are recognized in the condensed
consolidated financial statements based upon their fair values.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company's accounting policy for equity instruments
issued to consultants and vendors in exchange for goods and services follows FASB guidance. As such, the value of the applicable
stock-based compensation is periodically remeasured and income or expense is recognized during their vesting terms. The measurement
date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for
performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete.
In the case of equity instruments issued to consultants, the fair value of the equity instrument is primarily recognized over the
term of the consulting agreement. In accordance with FASB guidance, an asset acquired in exchange for the issuance of fully vested,
nonforfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once
the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of nonforfeitable equity
instruments issued for future consulting services as prepaid consulting fees in its condensed consolidated balance sheets.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recorded stock-based compensation
related to equity instruments granted to employees, directors and consultants as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 52%"><font style="font-size: 8pt">Employees - selling, general and administrative</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">378,895</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">115,634</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">464,898</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">118,224</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Employees - research and development</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">44,619</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">40,866</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">111,750</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">82,412</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Directors - selling, general and administrative</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">45,458</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">493,047</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">248,250</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">567,415</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Consultants - selling, general and administrative</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">345,605</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">79,987</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">505,527</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">79,987</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Consultants - research and development</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">180,559</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">117,959</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt; padding-left: 9pt"><font style="font-size: 8pt">Total</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">995,136</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">729,534</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">1,448,384</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">848,038</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Basic and Diluted Net Loss per Common Share</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic net loss per common share is computed
by dividing net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding
during the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders for the
period by the weighted average number of common and common equivalent shares, such as stock options and warrants outstanding during
the period.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic and diluted net loss applicable to common
stock per share is computed using the weighted average number of shares of common stock outstanding during the period. Common stock
equivalents (using the treasury stock or, “if converted” method) from convertible notes, preferred stock, stock options,
unvested restricted stock units (“RSUs”) and warrants were 3,138,004 and 1,476,987 at June 30, 2013 and 2012, respectively,
and are excluded from the calculation of diluted net loss per share for all periods presented because the effect is anti-dilutive.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table shows the computation of
basic and diluted loss per share of common stock for the three and six months ended June 30, 2013 and 2012:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 52%"><font style="font-size: 8pt">Net loss</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(2,218,052</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(1,305,593</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(3,683,533</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(2,684,681</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Deemed dividend to preferred stockholders</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">(200,000</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">(200,000</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Numerator – (loss) attributable to common stockholders</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(2,218,052</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(1,505,593</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(3,683,533</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(2,884,681</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Denominator – weighted average</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 9pt"><font style="font-size: 8pt">number of shares outstanding, basic and diluted</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">8,890,668</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">3,874,554</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">8,342,497</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">2,469,171</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt"><b>Net Loss per share, basic and diluted</b></font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(0.25</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(0.39</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(0.44</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(1.17</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Use of Estimates</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The preparation of financial statements in conformity
with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during
the reporting periods. Significant estimates made by management are, among others, the valuation of contributed services, deferred
taxes and stock-based compensation issued to employees and non-employees. Actual results could differ from those estimates.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Reclassifications</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Certain prior period items and amounts have
been reclassified to conform to the classifications used to prepare the 2013 condensed consolidated financial statements. These
reclassifications had no material impact on the Company’s financial position, results of operations, or cash flows as previously
reported.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Recently Announced Accounting Pronouncements</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In July 2013, the FASB issued Accounting Standards
Update (“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. The Company intends to adopt this guidance at the beginning of its first quarter of
fiscal year 2014, and is currently evaluating the impact on its financial statements and disclosures.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>Recently Adopted Accounting Pronouncements</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In December 2011, the FASB issued ASU 2011-11,
“Disclosures about Offsetting Assets and Liabilities.” This pronouncement was issued to enhance disclosure requirements
surrounding the nature of an entity’s right to offset and related arrangements associated with its financial instruments
and derivative instruments. This new guidance requires companies to disclose both gross and net information about instruments and
transactions eligible for offset in the statement of financial position and instruments and transactions subject to master netting
arrangements. This pronouncement is effective for reporting periods beginning on or after January 1, 2013. The adoption of
ASU 2011-11 did not have a material impact on our condensed consolidated financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In January 2013, the FASB issued ASU 2013-01,
“Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” This pronouncement was issued to address
implementation issues about the scope of ASU 2011-11 and to clarify the scope of the offsetting disclosures and address any
unintended consequences. This pronouncement is effective for reporting periods beginning on or after January 1, 2013. The
adoption of ASU 2013-01 did not have a material impact on our condensed consolidated financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><b> </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recorded stock-based compensation
related to equity instruments granted to employees, directors and consultants as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 52%"><font style="font-size: 8pt">Employees - selling, general and administrative</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">378,895</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">115,634</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">464,898</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">118,224</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Employees - research and development</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">44,619</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">40,866</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">111,750</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">82,412</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Directors - selling, general and administrative</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">45,458</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">493,047</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">248,250</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">567,415</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Consultants - selling, general and administrative</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">345,605</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">79,987</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">505,527</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">79,987</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Consultants - research and development</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">180,559</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">117,959</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt; padding-left: 9pt"><font style="font-size: 8pt">Total</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">995,136</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">729,534</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">1,448,384</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">848,038</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table shows the computation of
basic and diluted loss per share of common stock for the three and six months ended June 30, 2013 and 2012:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Three</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>For The Six</b></font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Months Ended</b></font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>June 30, 2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 52%"><font style="font-size: 8pt">Net loss</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(2,218,052</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(1,305,593</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(3,683,533</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">(2,684,681</font></td>
<td nowrap="nowrap" style="width: 1%"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Deemed dividend to preferred stockholders</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">(200,000</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">(200,000</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Numerator – (loss) attributable to common stockholders</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(2,218,052</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(1,505,593</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(3,683,533</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(2,884,681</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Denominator – weighted average</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt; padding-left: 9pt"><font style="font-size: 8pt">number of shares outstanding, basic and diluted</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">8,890,668</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">3,874,554</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">8,342,497</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">2,469,171</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt"><b>Net Loss per share, basic and diluted</b></font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(0.25</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(0.39</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(0.44</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">(1.17</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"><font style="font-size: 8pt">)</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Accounts payable and accrued expenses consisted
of the following:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>June 30,</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>December 31,</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>2012</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%"><font style="font-size: 8pt">Accounts payable</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">764,676</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">286,686</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Accrued offering costs</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">185,337</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Deferred rent</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">2,477</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Other accrued expenses</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">15,248</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">21,440</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Stock-based compensation accrual</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">88,450</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">139,444</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Total accounts payable and accrued expenses</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">868,374</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">635,384</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Number of RSUs</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Weighted Average Grant Date Fair Value</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%"><font style="font-size: 8pt">RSUs outstanding - January 1, 2013</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">200,000</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">3.25</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">RSUs granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">934,325</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">4.36</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">RSUs vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">(40,000</font></td>
<td nowrap="nowrap"><font style="font-size: 8pt">)</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">3.25</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">RSUs cancelled</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Balance at June 30, 2013</font></td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">1,094,325</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 8pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">4.20</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of the Plan activity with respect
to options to purchase common stock for the six months ended June 30, 2013 is as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Number of shares</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted Avg.</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Exercise Price</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted Avg. Remaining</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Contractual Life</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Aggregate</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Intrinsic Value</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Options outstanding - January 1, 2013</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">905,806</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">5.26</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Options granted</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">519,353</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">6.95</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Options exercised</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">(1,030</font></td>
<td nowrap="nowrap"><font style="font-size: 8pt">)</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">4.00</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Options cancelled/forfeit</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">(151,500</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">10.91</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="padding-bottom: 1.5pt"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="padding-bottom: 1.5pt"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 52%; padding-bottom: 3pt"><font style="font-size: 8pt">Options outstanding - June 30, 2013</font></td>
<td style="width: 1%; padding-bottom: 3pt; text-align: right"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double"> </td>
<td style="width: 9%; border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">1,272,629</font></td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 3pt"> </td>
<td style="width: 1%; padding-bottom: 3pt; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.27</font></td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 3pt"> </td>
<td style="width: 1%; padding-bottom: 3pt; text-align: right"> </td>
<td style="width: 1%"> </td>
<td style="width: 9%; padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.81</font></td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 3pt"> </td>
<td style="width: 1%; padding-bottom: 3pt; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">4,458,714</font></td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 3pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Options exercisable</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">648,888</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">4.15</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">4.87</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">3,044,856</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Options vested and expected to vest</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">1,210,255</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.21</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.76</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">4,317,328</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of the activity of the warrants for
the six months ended June 30, 2013 is as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Number of Shares Subject to Warrants Outstanding</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted Avg.</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Exercise Price</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td>
<td> </td>
<td colspan="2"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 78%"><font style="font-size: 8pt">Warrants outstanding - January 1, 2013</font></td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"> </td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">556,872</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: right"><font style="font-size: 8pt">7.66</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Granted</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">209,860</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">5.25</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Exercised</font></td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">Expired</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">(5,682</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">176.00</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Warrants outstanding and exercisable - June 30, 2013</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">761,050</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.74</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 3pt"><font style="font-size: 8pt">Weighted average remaining contractual life of the outstanding warrants in years - June 30, 2013</font></td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">2.51</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The table below illustrates the fair value per
share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted
to employees:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Six Months Ended</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>June 30, 2013</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 89%"><font style="font-size: 8pt">Weighted-average fair value of options granted</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: center"><font style="font-size: 8pt">6.90</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Expected terms (in years)</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">5.8</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Expected volatility</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">123%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Risk-free interest rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">0.86 %-1.00%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Dividend yield</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td></tr>
</table>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>2013</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 89%"><font style="font-size: 8pt">Weighted-average fair value of warrants granted</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: center"><font style="font-size: 8pt">5.10</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Expected terms (in years)</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">2.7-5</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Expected volatility</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">120%-346%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Risk-free interest rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">0.32%-0.92%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Dividend yield</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The table below illustrates the fair value per
share determined by the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted
to consultants:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Six Months Ended</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>June 30, 2013</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 89%"><font style="font-size: 8pt">Weighted-average fair value of options granted</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 8%; text-align: center"><font style="font-size: 8pt">6.73</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Expected terms (in years)</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">2.5-4.25</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Expected volatility</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">116% - 372%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">Risk-free interest rate</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">0.30%-1.04%</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Dividend yield</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table summarizes information about
stock options outstanding and exercisable at June 30, 2013:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td colspan="2" style="padding-bottom: 1.5pt"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="10" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Options Outstanding</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Options Exercisable</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Weighted</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Average</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Weighted</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Weighted</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Remaining</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Average</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Average</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Number</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Contractual</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Exercise</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Number</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Exercise</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Range of Exercise Prices</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Outstanding</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Life in Years</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Price</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Exercisable</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Price</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 23%"><font style="font-size: 8pt">2.40 - 3.20</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">250,000</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">6.07</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">2.80</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">225,000</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 8pt">2.76</font></td>
<td nowrap="nowrap" style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">$</font></td>
<td><font style="font-size: 8pt">3.60 - $4.50</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">624,643</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">3.63</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">4.07</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">409,832</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">4.19</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">$</font></td>
<td><font style="font-size: 8pt">6.00 - $9.00</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">383,103</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">9.20</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">8.08</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">3,174</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">8.75</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">$</font></td>
<td><font style="font-size: 8pt">10.75</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">7,603</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">4.46</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">10.75</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">3,802</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">10.75</font></td>
<td nowrap="nowrap"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">28.00 - $80.00</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">7,280</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">6.63</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">40.01</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">7,080</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">40.35</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">1,272,629</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td> </td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.81</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.27</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">648,888</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">4.15</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">A list of the warrants outstanding as of June 30, 2013 is included
in the table below:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="8" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Warrants Outstanding</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="4" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Warrants Exercisable</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Warrants</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Exercise</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td colspan="2" style="text-align: center"><font style="font-size: 8pt"><b>Warrants</b></font></td>
<td nowrap="nowrap" style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt"><b>Expiration</b></font></td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt"><b>Warrant Series</b></font></td>
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Issue Date</b></font></td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Outstanding</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Price</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="padding-bottom: 1.5pt; text-align: center"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Exercisable</b></font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt; text-align: center"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 8pt"><b>Date</b></font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 44%"><font style="font-size: 8pt">DermaStar</font></td>
<td style="width: 10%; text-align: right"><font style="font-size: 8pt">4/25/2012</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">48,262</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%"><font style="font-size: 8pt">$</font></td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">5.93</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 9%; text-align: right"><font style="font-size: 8pt">48,262</font></td>
<td nowrap="nowrap" style="width: 1%"> </td>
<td style="width: 10%; text-align: right"><font style="font-size: 8pt">4/25/2015</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 8pt">April PPM</font></td>
<td style="text-align: right"><font style="font-size: 8pt">4/25/2012</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">502,928</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">5.93</font></td>
<td nowrap="nowrap"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">502,928</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"><font style="font-size: 8pt">4/25/2015</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Underwriter Warrants</font></td>
<td style="text-align: right"><font style="font-size: 8pt">2/7/2013</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">179,860</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="text-align: right"><font style="font-size: 8pt">5.25</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 8pt">-</font></td>
<td nowrap="nowrap"> </td>
<td style="text-align: right"><font style="font-size: 8pt">2/7/2018</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">IR Consultant</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">2/28/2013</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">30,000</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">5.25</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 8pt">26,000</font></td>
<td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt; text-align: right"><font style="font-size: 8pt">2/28/2016</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">761,050</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td>
<td><font style="font-size: 8pt">$</font></td>
<td style="padding-bottom: 3pt; text-align: right"><font style="font-size: 8pt">5.74</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 8pt">577,190</font></td>
<td nowrap="nowrap" style="padding-bottom: 3pt"> </td>
<td style="padding-bottom: 3pt"> </td></tr>
</table>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 30%; border-bottom: black 1.5pt solid; text-align: justify"><font style="font-size: 8pt"><b>Tranche</b></font></td>
<td style="width: 1%; padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="width: 38%; border-bottom: black 1.5pt solid; text-align: justify"><font style="font-size: 8pt"><b>Number of Shares</b></font></td>
<td style="width: 1%; padding-bottom: 1.5pt; text-align: justify"> </td>
<td style="width: 30%; border-bottom: black 1.5pt solid; text-align: justify"><font style="font-size: 8pt"><b>Target Share Price</b></font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 8pt">Tranche 1</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">19.05% of the Baum Performance Equity Award granted</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">$10.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: white">
<td style="text-align: justify"><font style="font-size: 8pt">Tranche 2</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">19.05% of the Baum Performance Equity Award granted</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">$15.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 8pt">Tranche 3</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">19.05% of the Baum Performance Equity Award granted</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">$20.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: white">
<td style="text-align: justify"><font style="font-size: 8pt">Tranche 4</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">19.05% of the Baum Performance Equity Award granted</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">$25.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font-size: 8pt">Tranche 5</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">23.80% of the Baum Performance Equity Award granted</font></td>
<td style="text-align: justify"> </td>
<td style="text-align: justify"><font style="font-size: 8pt">$30.00 or greater</font></td></tr>
</table>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 30%; border-bottom: black 1.5pt solid"><font style="font-size: 8pt"><b>Tranche</b></font></td>
<td style="width: 1%; padding-bottom: 1.5pt"> </td>
<td style="width: 38%; border-bottom: black 1.5pt solid"><font style="font-size: 8pt"><b>Number of Shares</b></font></td>
<td style="width: 1%; padding-bottom: 1.5pt"> </td>
<td style="width: 30%; border-bottom: black 1.5pt solid"><font style="font-size: 8pt"><b>Target Share Price</b></font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Tranche 1</font></td>
<td> </td>
<td><font style="font-size: 8pt">20,000 shares</font></td>
<td> </td>
<td><font style="font-size: 8pt">$10.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: white">
<td><font style="font-size: 8pt">Tranche 2</font></td>
<td> </td>
<td><font style="font-size: 8pt">20,000 shares</font></td>
<td> </td>
<td><font style="font-size: 8pt">$15.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Tranche 3</font></td>
<td> </td>
<td><font style="font-size: 8pt">20,000 shares</font></td>
<td> </td>
<td><font style="font-size: 8pt">$20.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: white">
<td><font style="font-size: 8pt">Tranche 4</font></td>
<td> </td>
<td><font style="font-size: 8pt">20,000 shares</font></td>
<td> </td>
<td><font style="font-size: 8pt">$25.00 or greater</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Tranche 5</font></td>
<td> </td>
<td><font style="font-size: 8pt">20,000 shares</font></td>
<td> </td>
<td><font style="font-size: 8pt">$30.00 or greater</font></td></tr>
</table>
1448384
848038
464898
118224
111750
82412
248250
567415
505527
79987
117959
995136
729534
378895
115634
44619
40866
45458
493047
345605
79987
180559
868374
635384
88450
139444
15248
21440
2477
185337
764676
286686
1210255
648888
556872
761050
1272629
905806
-5682
-151500
-1030
209860
934325
519353
5.21
4.15
7.66
5.74
5.27
5.26
176
10.91
4
5.25
6.95
P5Y9M22D
P5Y9M22D
P6Y25D
P3Y7M17D
P9Y2M12D
P4Y5M16D
P6Y7M17D
P2Y6M4D
P4Y10M13D
P5Y2M16D
4317328
3044856
4458714
5.1
4.36
6.73
6.9
P2Y8M12D
P5Y9M18D
1.20
1.16
1.23
3.46
3.72
1.23
.0032
.0030
.0086
.0092
.0104
.0100
0.00
0.00
2.5-4.25 years
2.40
3.60
6.00
10.75
28.00
3.20
4.50
9.00
10.75
80.00
4.15
2.76
4.19
8.75
10.75
40.35
648888
225000
409832
3174
3802
7080
5.27
2.8
4.07
8.08
10.75
40.01
1272629
250000
624643
383103
7603
7280
$10.00 or greater
$15.00 or greater
$20.00 or greater
$25.00 or greater
$30.00 or greater
$10.00 or greater
$15.00 or greater
$20.00 or greater
$25.00 or greater
$30.00 or greater
.1905
.1905
.1905
.1905
.2380
20000
20000
20000
20000
20000
200000
1094325
-40000
3.25
4.2
3.25
P5Y
2015-04-25
2015-04-25
2018-02-07
2016-02-28
577190
48262
502928
26000
5.74
5.93
5.93
5.25
5.25
761050
48262
502928
179860
30000
2012-04-25
2012-04-25
2013-02-07
2013-02-28
3138004
1476987
50034
10000
20000
192339
149806
During June 2013, the Company issued 33,333 restricted shares of common stock to Dr. Robert Kammer, a director, valued at $243,333, in consideration for consulting services provided during the year ended December 31, 2012 and through June 30, 2013. During June 2013, the Company issued 40,000 shares of common stock to Mark Baum, the Company’s CEO and a director, related to vesting of restricted stock units (“RSUs”).
5000000
0.001
0
0
129481
4189000
195040
P2Y5M26D
<p style="font: 8pt Times New Roman, Times, Serif; margin: 7.5pt 0 0"><b>Intellectual Property  </b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 7.5pt 0 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 we have not identified an alternative future use for the acquired
rights, and are capitalized in situations where it 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>