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<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Echo Therapeutics, Inc.
is a transdermal medical device company with expertise in advanced skin p<font style="font-size: 10pt">ermeation technology that
is initially focused on continuous glucose monitoring and needle-free drug delivery.  Echo is developing its Prelude®
SkinPrep System as a platform technology to allow for significantly enhanced and painless skin permeation that will enable two
important applications:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"> </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; font: 10pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt">·  </font></td>
<td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt">Analyte extraction,
with the Symphony® tCGM System for needle-free, continuous glucose monitoring in hospital patients and diabetics as the
first application.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"> </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; font: 10pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt">·  </font></td>
<td style="font: 10pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 10pt">Needle-free drug delivery.</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt"><font style="font-size: 10pt">The
accompanying consolidated financial statements include the accounts of the Company and its only wholly-owned subsidiary,
So</font>ntra Medical, Inc., a Delaware corporation. All significant inter-company balances and transactions have been
eliminated in consolidation.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The accompanying consolidated financial statements
reflect the application of the following accounting policies:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The accompanying consolidated financial statements
have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) “FASB Accounting Standard
Codification™” (the “Codification”) which is the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) in the United States.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Use of Estimates</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The preparation of financial statements in
conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the Company’s
consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Cash and Cash Equivalents</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company considers all highly liquid investments
with maturities of ninety days or less to be cash equivalents. Cash equivalents consisted of money market funds as of December
31, 2011 and 2010. The Company maintains its cash in bank deposit accounts which, at times, may exceed the federally insured limits.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Restricted Cash</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Restricted cash as of December 31, 2011 represents
a letter of credit for $250,000 issued to one of the Company’s key development vendors.  Non-current restricted
cash represents a security deposit on the Company’s leased offices in Franklin, Massachusetts and as of December 31, 2010
cash in escrow related to the November 2010 Common Stock and Warrant Financings completed in February 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Accounts Receivable</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Accounts receivable primarily represents amounts
billed by the Company. An allowance for doubtful accounts is determined based on management’s best estimate of probable losses
inherent in the accounts receivable balance. Amounts determined to be uncollectible are written off against the allowance. Management
assesses the allowance based on information regarding nature of the receivables and historical experience. No allowance was deemed
necessary as of December 31, 2011 and 2010.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Intangible Assets and Other Long-Lived
Assets</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company records intangible assets at the
acquisition date fair value. As a policy, the Company amortizes its intangible assets using the straight-line method over their
estimated useful lives, as follows: patents and licenses, 2 to 20 years; definite-lived core and developed technology, 5 to 25
years; and other intangible assets over the following periods.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">In connection with the acquisition of Durham
Pharmaceuticals Ltd., a North Carolina corporation doing business as Echo Therapeutics, Inc. (the “ETI Acquisition”),
intangible assets related to contractual arrangements were amortized over the estimated useful life of 3 years and ended in 2010.  Intangible
assets from the ETI Acquisition related to technology are expected to be amortized on a straight-line basis over the period ending
2019 and will commence upon revenue generation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company reviews intangible assets subject
to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate
impairment or a change in the remaining useful life of any intangible asset. Conditions that would indicate impairment and trigger
an impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that
could affect the value of an asset, or an adverse action or assessment by a regulator. If the carrying value of an asset exceeds
its estimated undiscounted future cash flows, the Company writes down the carrying value of the intangible asset to its fair value
in the period identified.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">For other long-lived assets, the Company evaluates
quarterly whether events or circumstances have occurred that indicate that the carrying value of these assets may be impaired.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company generally calculates fair value
as the present value of estimated future cash flows it expects to generate from the asset using a risk-adjusted discount rate.
If the estimate of an intangible asset’s remaining useful life is changed, the Company amortizes the remaining carrying value
of the intangible asset prospectively over the revised remaining useful life.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company performs a regular review of the
underlying assumptions, circumstances, time projections and revenue and expense estimates to decide if there is a possible impairment.
In reviewing the long-lived assets relating to the ETI Acquisition as of December 31, 2011, the Company concluded that there was
no impairment of the carrying value of such long-lived assets. No impairment losses were recorded for the years ended December
31, 2011 and 2010.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Depreciation and Amortization</i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company provides for depreciation and amortization
by charges to operations for the cost of assets using the straight-line method based on the estimated useful lives of the related
assets, as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 78%; border-bottom: black 1.5pt solid; text-align: justify; font-weight: bold">Asset Classification</td>
<td style="width: 22%; border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Estimated Useful Life </td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td style="text-align: justify">Computer equipment                                                                                                </td>
<td style="text-align: center">3 years</td></tr>
<tr style="vertical-align: top; background-color: white">
<td style="text-align: left">Office and laboratory equipment                                                                                                </td>
<td style="text-align: center">3-5 years</td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td style="text-align: justify">Furniture and fixtures                                                                                                </td>
<td style="text-align: center">7 years</td></tr>
<tr style="vertical-align: top; background-color: white">
<td style="text-align: justify">Manufacturing equipment                                                                                                </td>
<td style="text-align: center">5 years</td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td style="text-align: justify">Leasehold improvements                                                                                                </td>
<td style="text-align: center">Life of lease</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Share-Based Payments</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company recognizes compensation costs resulting
from the issuance of stock-based awards to employees and directors as an expense in the statement of operations over the service
period based on the measurement date fair value for each stock award. The Company’s policy is to grant employee
and director stock options with an exercise price equal to or greater than the fair value of the Common Stock at the date of grant.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company recognizes compensation costs resulting
from the issuance of stock-based awards to non-employees as an expense in the statement of operations over the service period based
on a measurement of fair value for each stock award.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Derivative Instruments</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company generally does not use derivative
instruments to hedge exposures to cash-flow or market risks; however, certain warrants to purchase Common Stock that do not meet
the requirements for classification as equity are classified as liabilities. In such instances, net-cash settlement is assumed
for financial reporting purposes, even when the terms of the underlying contracts do not provide for a net-cash settlement. Such
financial instruments are initially recorded at fair value with subsequent changes in fair value charged (credited) to operations
in each reporting period. If these instruments subsequently meet the requirements for classification as equity, the Company reclassifies
the fair value to equity.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Fair Values of Assets and Liabilities</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company groups its financial assets and
financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities
are traded and the reliability of the assumptions used to determine fair value.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 8%; text-align: justify">Level 1:</td>
<td style="width: 92%; text-align: justify">Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.</td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify">Level 2:</td>
<td style="text-align: justify">Valuation is based on 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 for substantially the full term of the assets or liabilities. For example, Level 2 assets and liabilities may include debt securities with quoted prices that are traded less frequently than exchange-traded instruments.</td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: justify">Level 3:</td>
<td style="text-align: justify">Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments and long-term derivative contracts.</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company's financial liabilities measured
at fair value on December 31, 2011 and 2010 consists of a derivative warrant liability which is classified as Level 3 in fair value
hierarchy (see Note 6).  The Company uses a valuation method, the Black-Scholes option pricing model, and the requisite assumptions
in estimating the fair value for the warrants considered to be derivative instruments.  These assumptions include
the fair value of the underlying stock, risk-free interest rates, volatility, expected life and dividend rates.  The
Company has no financial assets measured at fair value.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company may also be required, from time
to time, to measure certain other financial assets at fair value on a nonrecurring basis.  These adjustments to fair value
usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.  There were
no such adjustments in the years ended December 31, 2011 and 2010.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Concentration of Credit Risk</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company has no significant off-balance-sheet
risk. Financial instruments, which subject the Company to credit risk, principally consist of cash and cash equivalents. The Company
mitigates its risk by maintaining the majority of its cash and equivalents with high-quality financial institutions.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Financial Instruments</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The estimated fair value of the Company’s
financial instruments, which include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, notes payable and
capital lease obligation, approximates their carrying value due to the short-term nature of these instruments and their market
terms.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Net Loss per Common Share</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Basic and diluted net loss per share of Common
Stock has been computed by dividing the net loss applicable to common stockholders in each period by the weighted average number
of shares of Common Stock outstanding during such period. For the periods presented, options, warrants and convertible securities
were anti-dilutive and therefore excluded from diluted loss per share calculations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Segment Information</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Operating segments are identified as components
of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision
maker, or decision making group, in making decisions regarding resource allocation and assessing performance. To date, the Company
has viewed its operations and manages its business as principally one operating segment, which is the development of transdermal
skin permeation and diagnostic medical devices. As of December 31, 2011 and 2010, all of the Company’s assets were located
in the United States.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Research and Development Expenses</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company charges research and development
expenses to operations as incurred. Research and development expenses primarily consist of salaries and related expenses for personnel
and outside contractor and consulting services. Other research and development expenses include the costs of materials and supplies
used in research and development, prototype manufacturing, clinical studies, related information technology and an allocation of
facilities costs.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Grant Income</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Grants received are recognized as income when
the related work is performed and the qualifying research and development costs are incurred and are presented as Other Income
on the Company’s consolidated statements of operations. The Company received a grant totaling approximately $244,500 under
the Qualified Therapeutic Discovery Project Grants Program during 2010. The Qualified Therapeutic Discovery Project Grants Program
was included in the healthcare reform legislation and established a one-time pool of $1 billion for grants to small biotechnology
companies developing certain novel therapeutics.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Income Taxes</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company is primarily subject to U.S. federal,
Massachusetts, Pennsylvania and New Jersey state income tax. Tax years subsequent to 2007 remain open to examination by U.S.
federal and state tax authorities.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">For federal and state income taxes, deferred
tax assets and liabilities are recognized based upon temporary differences between the financial statement and the tax basis of
assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences
are expected to reverse. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Accordingly, since the Company cannot be assured of realizing the deferred tax asset, a full valuation
allowance has been provided.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">When tax returns are filed, it is highly certain
that some positions taken would be sustained upon examination by the taxing authorities, while others may be subject to uncertainty
about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position
is recognized in the financial statements in the period during which, based on all available evidence, management believes it is
more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes,
if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not
recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement
with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured
as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing authorities upon examination. There was no uncertain tax position liabilities
recorded at December 31, 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company’s policy is to recognize
interest and penalties related to income tax matters in income tax expense. As of December 31, 2011 and 2010, the Company had no
accruals for interest or penalties related to income tax matters.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Licensing and Other Revenue Recognition</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">To date, the Company has generated revenue
primarily from licensing agreements, including upfront, nonrefundable license fees, with collaborators and licensees. The Company
recognizes revenue when the following criteria have been met:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table align="center" cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 6%; text-align: justify">· </td>
<td style="width: 93%; text-align: justify">persuasive evidence of an arrangement exists;</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table align="center" cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 6%; text-align: justify">· </td>
<td style="width: 93%; text-align: justify">delivery has occurred and risk of loss has passed;</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table align="center" cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 6%; text-align: justify">· </td>
<td style="width: 93%; text-align: justify">the price to the buyer is fixed or determinable; and</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table align="center" cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 6%; text-align: justify">· </td>
<td style="width: 93%; text-align: justify">collectability is reasonably assured.</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">In addition, when evaluating multiple element
arrangements, the Company considers whether the components of the arrangement represent separate units of accounting. Multiple
elements are divided into separate units of accounting if specified criteria are met, including whether the delivered element has
stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items.
The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue
recognition criteria are applied to each of the separate units. Otherwise, the applicable revenue recognition criteria are applied
to combined elements as a single unit of accounting.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company typically receives upfront, nonrefundable
payments for the licensing of its intellectual property upon the signing of a license agreement. The Company believes that these
payments generally are not separable from the payments it receives for providing research and development services because the
license does not have stand-alone value from the research and development services it provides under its agreements. Accordingly,
the Company accounts for these elements as one unit of accounting and recognizes upfront, nonrefundable payments as revenue on
a straight-line basis over its contractual or estimated performance period. Revenue from the reimbursement of research and development
efforts is recognized as the services are performed based on proportional performance adjusted from time to time for any delays
or acceleration in the development of the product and is included in Other Revenue. The Company determines the basis of the estimated
performance period based on the contractual requirements of its collaboration agreements. At each reporting period, the Company
evaluates whether events warrant a change in the estimated performance period.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Other Revenue includes amounts earned and billed
under the license and collaboration agreements for reimbursement of research and development costs for contract engineering services.
For the services rendered, principally third-party contract engineering services, the revenue recognized approximates the costs
associated with the services.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Recent Accounting Pronouncements</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="margin: 0; text-align: justify; text-indent: 22pt"><font style="font: 10pt Times New Roman, Times, Serif">In May 2011, the FASB issued ASU 2011-04, Fair Value
Measurement (Topic 820).  The ASU provides amendments to achieve common fair value measurements and disclosure requirements
in US GAAP and IFRS. The guidance clarifies and expands the disclosure pertaining to unobservable inputs used in Level 3 fair
value measurements, including the disclosure of quantitative information related to (1) the valuation processes used, (2) the
sensitivity of the fair value measurement to changes in unobservable inputs, and (3) use of a nonfinancial asset in a way that
differs from the asset’s highest and best use. The guidance also requires that public entities disclose the level within
the fair value hierarchy for assets and liabilities not measured at fair value in the statement of financial position but for
which the fair value is disclosed. The amendments are to be applied prospectively and are effective for annual periods beginning
after December 15, 2011 for public companies.  The Company does not expect the adoption to have a material impact.</font></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">As of December 31, 2011 and 2010, intangible
assets related to the ETI Acquisition are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="2" style="padding-bottom: 1.2pt"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2011</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2010</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Estimated Life</td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Cost</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Accumulated</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Amortization</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Net</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Net</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify">Contract related intangible asset:</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 38%; padding-bottom: 1.2pt; text-align: justify">   Cato Research discounted contract</td>
<td style="width: 10%; padding-bottom: 1.2pt; text-align: right">3 years</td>
<td style="width: 1%; padding-bottom: 1.2pt; text-align: right"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; text-align: right">$</td>
<td style="width: 10%; border-bottom: black 1.5pt solid; text-align: right">355,000</td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 1.2pt; text-align: right"> </td>
<td style="width: 1%; padding-bottom: 1.2pt; text-align: right"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; text-align: right">$</td>
<td style="width: 10%; border-bottom: black 1.5pt solid; text-align: right">355,000</td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 1.2pt; text-align: right"> </td>
<td style="width: 1%; padding-bottom: 1.2pt; text-align: right"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; text-align: right">$</td>
<td style="width: 10%; border-bottom: black 1.5pt solid; text-align: right">—</td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 1.2pt; text-align: right"> </td>
<td style="width: 1%; padding-bottom: 1.2pt; text-align: right"> </td>
<td style="width: 1%; border-bottom: black 1.5pt solid; text-align: right">$</td>
<td style="width: 10%; border-bottom: black 1.5pt solid; text-align: right">—</td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Technology related intangible assets:</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Patents for the AzoneTS-based product candidates and formulation</td>
<td style="text-align: right">6 years</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,305,000</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">—</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,305,000</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,305,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Drug Master Files containing formulation, clinical and safety documentation used by the FDA</td>
<td style="text-align: right"> 6 years</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,500,000</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">—</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,500,000</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,500,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.2pt; text-align: left">In-process pharmaceutical products for 2 indications</td>
<td style="padding-bottom: 1.2pt; text-align: right"> 6 years</td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">6,820,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">—</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">6,820,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">6,820,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left">Total technology related intangible assets</td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">9,625,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">—</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">9,625,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">9,625,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: justify">Total</td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">9,980,000</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">355,000</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">9,625,000</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">9,625,000</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Intangible assets related to technology are
expected to be amortized on a straight-line basis over the period ending 2019 when the underlying patents expire and will commence
upon revenue generation, which the Company has estimated to be during 2013.  The contract related intangible asset was
amortized over a 3 year period which ended in 2010. Amortization expense relating to the contract was approximately $84,000 for
the year ended December 31, 2010, and is included in research and development in the Consolidated Statement of Operations.  No
such amortization was recorded in 2011 as the asset was fully amortized during the prior year.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Estimated amortization expense for each of
the next five years is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p></td>
<td style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Estimated Amortization Expense</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify">For the Year Ending December 31,</td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 80%; text-align: justify">2012</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 4%; text-align: right">$</td>
<td style="width: 14%; text-align: right">—</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">2013</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,604,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">2014</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,604,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">2015</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,604,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">2016</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,604,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company leases approximately 13,000 square
feet of manufacturing, laboratory and office space in a single facility located in Franklin, Massachusetts under a lease expiring
March 31, 2014.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company also leases approximately 5,400
square feet of corporate office space in a single facility located in Philadelphia, Pennsylvania under a lease expiring April 30,
2014.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Future minimum lease
payments for each of the next five years under these operating leases at December 31, 2011 are approximately as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Franklin</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Philadelphia</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Total</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify">For the Year Ending December 31,</td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 55%; text-align: justify">2012</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right">$</td>
<td style="width: 12%; text-align: right">144,000</td>
<td nowrap="nowrap" style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right">$</td>
<td style="width: 12%; text-align: right">128,000</td>
<td nowrap="nowrap" style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right">$</td>
<td style="width: 12%; text-align: right">272,000</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">2013</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">144,000</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">132,000</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">276,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">2014</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">36,000</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">44,000</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">80,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">2015</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.2pt; text-align: justify">2016</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.4pt; text-align: justify">Total</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">324,000</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">304,000</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">628,000</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company’s facilities lease expense
was approximately $224,000 and $169,000 for the years ended December 31, 2011 and 2010, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company leases copiers in the Philadelphia
office through a non-cancelable operating lease at a cost of approximately $635 per month. The Company is obligated to pay approximately
$8,000, $8,000 and $3,000 for 2012, 2013 and 2014, respectively. The total is approximately $19,000 over the course of the lease.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Notes payable and capital lease obligations
at December 31, 2011 and 2010 consisted of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2011</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2010</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 70%; text-align: justify">Short-term Notes</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right">$</td>
<td style="width: 12%; text-align: right">-</td>
<td nowrap="nowrap" style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right">$</td>
<td style="width: 12%; text-align: right">100,000</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: justify">Capital lease obligation</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">6,176</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">8,247</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Total notes payable and capital lease obligation</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">6,176</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">108,247</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: justify">Less current portion of notes payable and capital lease obligation</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">2,288</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">102,071</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: justify">Notes Payable and capital lease obligation, net of current portion</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">3,888</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">6,176</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>2010 Short-term Notes</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt"><i>Short-term Notes –</i> In September
2010, the Company issued $250,000 of short-term notes, maturing in 90 days.  In lieu of interest, the note holders were
issued 2,000 unregistered shares of the Company’s common stock, $0.01 par value, for every $10,000 of principal loaned.  A
total of 50,000 shares with a fair value of approximately $48,500 were issued in September 2010 pursuant to these short-term notes.  The
fair value of the stock was amortized over the 90 day term.  One short-term note in the amount of $100,000 was extended
for one month on December 23, 2010 in exchange for 5,000 shares of common stock issued in January 2011 with a fair value of $10,500.  In
January 2011, the Company repaid $75,000 in cash on the extended note and the remaining $25,000 was used to purchase Common Stock
and warrants to purchase Common Stock (see Note 8). Non-cash interest expense on the extended note for the year ended December
31, 2011 was approximately $6,200. Non-cash interest expense for the 2010 short-term notes was approximately $35,200.  Unamortized
interest cost of approximately $1,600 and $12,000 was recognized as a loss on extinguishment of debt in 2011 and 2010, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt"><i>Capital Lease — </i>In July 2009,
the Company entered into a five-year lease of an office copier which is included with the Office and Laboratory Equipment. The
value of the equipment capitalized was approximately $11,000. The lease payments of $234 per month, payable in arrears, reflect
a 10% interest rate. Accumulated depreciation on the leased copier as of December 31, 2011 and 2010 was approximately $5,500 and
$3,300, respectively.  During the years ended December 31, 2011 and 2010, interest expense related to the capital lease
obligation was approximately $700 and $900, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt"></p>
<p style="margin: 0pt; text-indent: 22pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Derivative financial
instruments are recognized as a liability on the consolidated balance sheet and measured at fair value.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">At December 31, 2011 and
2010, the Company had outstanding warrants to purchase 7,527,529 and 10,336,292 shares of its common stock, respectively. Included
in these outstanding warrants at December 31, 2011 and 2010 are warrants to purchase 725,142 and 1,356,289 shares, respectively,
that are considered to be derivative instruments since the agreements contain “down round” provisions whereby the number
of shares covered by the warrants is subject to change in the event of certain dilutive stock issuances. The fair value of these
derivative instruments at December 31, 2011 and 2010 was approximately $1,035,000 and $1,545,000, respectively, and is included
in Derivative Warrant Liability, a current liability. Changes in fair value of the derivative financial instruments are recognized
currently in the Statements of Operations as a Derivatives Gain or Loss. The changes in the fair value of the derivative warrant
liability in the years ended December 31, 2011 and 2010 resulted in a loss of approximately $1,763,000 and a gain of approximately
$371,000, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The primary underlying
risk exposure pertaining to the warrants is the change in fair value of the underlying common stock for each reporting period.
Of the total warrants exercised in 2011 and 2010, warrants to purchase 1,419,470 and 143,793 shares of Common Stock, respectively,
were exercised per a cashless exercise provision.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">For the years ended December
31, 2011 and 2010, warrants with down round provisions to purchase 653,150 and 143,793 shares, respectively, were exercised and
certain anti-dilution rights were waived (see Note 10) which resulted in a reclassification to additional paid-in capital in the
amount of approximately $2,273,000 and $200,000, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The table below presents
the changes in Level 3 derivative warrant liability measured at fair value on a recurring basis.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2011</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2010</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; font-weight: bold">Liabilities:</td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 70%; text-align: justify">Derivative warrant liability as of January 1</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right">$</td>
<td style="width: 12%; text-align: right">1,544,996</td>
<td nowrap="nowrap" style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right">$</td>
<td style="width: 12%; text-align: right">2,116,696</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Total unrealized losses included in net loss (1) </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">2,191,147</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(369,984</td>
<td nowrap="nowrap" style="text-align: justify">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Total realized losses included in net loss (1) </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">978,678</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(2,096</td>
<td nowrap="nowrap" style="text-align: justify">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Total unrealized gains included in net loss (1) </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(1,377,261</td>
<td nowrap="nowrap" style="text-align: right">)</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Total realized gains included in net loss (1) </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(29,626</td>
<td nowrap="nowrap" style="text-align: right">)</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">737</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.2pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Reclassification of derivative warrant liability
to additional paid-in capital</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">for derivative warrants exercised</p></td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(2,272,597</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right">)</td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(200,357</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: justify">Derivative warrant liability as of December 31</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">1,035,337</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">1,544,996</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">________________________</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">(1) Included in derivative warrant liability
gain or loss in the Consolidated Statement of Operations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company is authorized to issue up to 40,000,000
shares of preferred stock with such rights, preferences and privileges as are fixed by the Board of Directors.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i> Series B Perpetual Redeemable Preferred
Stock and Warrant Financing</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has authorized 40,000 shares of
non-convertible Series B Perpetual Preferred Stock, $0.01 par value (“Series B Stock”), of which 0 and 154.3940 shares
were issued and outstanding as of December 31, 2011 and 2010, respectively. The Series B Stock was initially issued on June 30,
2009.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">   The Company accrued and satisfied
approximately $158,000 and $132,000 of dividends by issuing 15.7732 and 13.1659 shares of Series B Stock during the years ended
December 31, 2011 and 2010, respectively.  These dividends are included in the Consolidated Statements of Operations in Arriving
at Net lLss Appliable to Common Shareholders. </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">    On October 27, 2011,
the Company entered into an agreement with Platinum Long Term Growth VII, LLC (Platinum) and Platinum Montaur Life Sciences, LLC
(Montaur) pursuant to which Platinum and Montaur exercised certain warrants to purchase Common Stock and, in lieu of delivering
the cash exercise price for such warrant exercises, Montaur, on behalf of itself and Platinum, surrendered an aggregate of 170.1672
shares of the Series B Stock held by it, with a redeemable value of $1,701,672, as full payment for the exercise of the warrants
(the “Exchange”). After giving effect to the Exchange, the Company has no issued or outstanding Series B Stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">   </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">    In the aggregate, and
without giving effect to any beneficial ownership limitation provisions contained in the warrants, the warrant exercises in the
Exchange would have resulted in the issuance to Platinum and Montaur of 1,830,895 shares of Common Stock. As part of the Exchange,
the Company issued an aggregate of 1,830.895 shares of Series C Stock to Montaur in lieu of issuing 1,830,895 shares of Common
Stock. After the Exchange, Montaur holds no shares of Series B Stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Series C Convertible Preferred Stock</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">    The Company has authorized
10,000 shares of Series C Stock, of which 9,974.185 and 4,918.100 shares were issued and outstanding as of December 31, 2011 and
2010, respectively. The Series C Stock was created on June 30, 2009. Key terms of the Series C Stock are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">•  Pursuant to the terms of the Certificate
of Designation, Preference and Rights of Series C Preferred Stock (the “Series C Certificate”), each share of Series
C Stock is initially convertible into one thousand shares of Common Stock, subject to adjustment for stock splits, combinations
or similar events.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">•  Each holder who receives Series
C Stock may convert its Series C Stock at any time following its issuance.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">•  In the event of any Liquidation
Event (as defined in the Series C Certificate), the holders of Series C Stock will be entitled to receive (subject to the rights
of any securities designated as senior to the Series C Stock) a per share liquidation preference equal to an amount calculated
by taking the total amount available for distribution to holders of all the Company’s outstanding Common Stock before deduction
of any preference payments for the Series C Stock, divided by the total of (x) all of the then outstanding shares of Common Stock,
plus (y) all of the shares of Common Stock into which all of the outstanding shares of the Series C Stock can be converted, in
each case prior to any distribution to the holders of Common Stock or any other securities designated as junior to the Series C
Stock.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Series D Convertible Preferred Stock</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 8, 2011 the Company entered into
a Series D Convertible Preferred Stock Purchase Agreement (the “Series D Agreement”) with Montaur and certain other
strategic accredited investors (each, a “Series D Investor” and collectively, the “Series D Investors”)
in connection with the Company’s private placement (the “Series D Financing”) of Series D Convertible Preferred
Stock (“Series D Stock”) at a price per share of $1.00.  For every $100,000 face value of Series D Stock
purchased in the Series D Financing, the Series D Investor was issued (i) Series 1 warrants to purchase 50,000 shares of Common
Stock with an exercise price of $1.50 per share (the “Series D-1 Warrants”), and (ii) Series 2 warrants to purchase
50,000 shares of Common Stock with an exercise price of $2.50 per share (the “Series D-2 Warrants” and, together with
the Series D-1 Warrants, the “Series D Warrants”).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 8, 2011 there was a closing in
connection with the Series D Agreement and the Company received cash proceeds of $2,500,000 for the purchase of 2,500,000 shares
of Series D Stock. The Company issued 1,006,000 shares of Series D Stock in exchange for the extinguishment of an 8% Senior Promissory
Note issued by the Company on January 5, 2011 in the principal amount of $1,000,000, plus interest accrued through February 1,
2011 in the amount of $6,000.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company issued an aggregate of 1,753,000
Series D-1 Warrants and 1,753,000 Series D-2 Warrants to the Series D Investors pursuant to the Series D Agreement.  The
Series D Warrants are immediately exercisable and expire on February 7, 2013; however, if the Series D Warrants are not exercised
in full by February 7, 2013 by virtue of the application of a beneficial ownership “blocker”, then the term of the
Series D Warrants shall be extended for thirty (30) days past the date on which the beneficial ownership blocker is no longer applicable.
An exercise under the Series D Warrants may not result in the holder beneficially owning more than 4.99% or 9.99%, as applicable,
of all of the Common Stock outstanding at the time; provided, however, that a holder may waive the foregoing provision upon 61 days’
advance written notice to the Company.  The exercise price of these warrants is subject to adjustment for stock splits,
business combinations or similar events.  Key terms of the Series D Stock are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; font: 10pt Times New Roman, Times, Serif; text-align: justify">·  </td>
<td style="font: 10pt Times New Roman, Times, Serif; text-align: justify">Pursuant to the terms of the Certificate of Designation, Preferences and Rights of the Series D Convertible Preferred Stock, the shares of Series D Stock are initially convertible into shares of Common Stock at a price per share equal to $1.00, subject to adjustment for stock splits, business combinations or similar events, and shall have a liquidation preference equal to their stated value.</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; font: 10pt Times New Roman, Times, Serif; text-align: justify">·  </td>
<td style="font: 10pt Times New Roman, Times, Serif; text-align: justify">Each holder who receives Series D Stock may convert it at any time following its issuance.</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; font: 10pt Times New Roman, Times, Serif; text-align: justify">·  </td>
<td style="font: 10pt Times New Roman, Times, Serif; text-align: justify">The Series D Stock does not pay a dividend and is not redeemable.</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with issuance of Series D Stock,
the conversion feature of Series D Stock was considered beneficial, or “in the money”, at issuance due to a conversion
rate that allows the investor to obtain the Common Stock at below market price. The Company recorded a deemed dividend on the beneficial
conversion feature equal to the incremental fair value resulting from the reduction in the conversion rate of $1,975,211. This
deemed dividend is included in the 2011 Consolidated Statement of Operations in arriving at the Net Loss Applicable to Common Shareholders.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In accordance with (i) the Certificate of Designation,
Rights and Preferences of the Series B Stock (the “Series B Certificate”) and (ii) a letter agreement dated January
19, 2010 between the Company and the sole holder of the Series B Stock (the “Series B Holder”), the Company was obligated
to use 25% of the gross proceeds from the Series D Financing to redeem the Series B Stock. On February 4, 2011, the Company entered
into a letter agreement (the “Letter”) with the Series B Holder pursuant to which the Series B Holder waived the redemption
of shares of the Series B Stock triggered by the Series D Financing.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On October 19, 2011, an investor converted
500,000 shares of Series D Stock into 500,000 shares of Common Stock.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has authorized 100,000,000 shares
of Common Stock, $0.01 par value per share, of which 38,543,994 and 31,126,245 shares were issued and outstanding as of December
31, 2011 and 2010, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>February 2010 Financing</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 4, 2010, the Company entered into
a Common Stock and Warrant Purchase Agreement (the “February Agreement”) with certain strategic institutional and accredited
investors in connection with the Company’s private placement (the “February Financing”) of shares of its Common
Stock, at a price of $1.50 per share (the “February Shares”). Under the terms of the February Agreement, each investor
received warrants to purchase a number of shares of Common Stock with an exercise price of $2.25 per share equal to fifty percent
(50%) of the number of February Shares purchased by such investor (the “February Warrants”).  The Company
issued 1,636,739 shares of Common Stock and received gross proceeds of approximately $2,455,000 in connection with the February
Financing. Total cost to issue the shares was $361,111 which included non-cash costs of $217,141.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Pursuant to the February Agreement, the Company
issued an aggregate of 818,362 February Warrants to the investors and 128,899 warrants to the placement agent and its assignees.
The February Warrants are immediately exercisable and expire no later than five (5) years from the date of issuance. The exercise
price is subject to adjustment for stock splits, combinations or similar events. The February Warrants allow for cashless exercise.
An exercise under the February Warrants may not result in the holder beneficially owning more than 4.99% or 9.99%, as applicable,
of all of the Common Stock outstanding at the time; provided, however, that a holder may waive the foregoing provision upon sixty-one
(61) days’ advance written notice to the Company.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>       </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>November 2010 Financings</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In November 2010, the Company initiated a private
placement (the “November 2010 Financing”) of up to 120 units (each, a “Unit” and together, the “Units”)
or partial Units at a price per Unit of $25,000.  Each Unit consists of (i) 25,000 shares of Common Stock, (ii) Series
1 warrants to purchase 12,500 shares of the Company’s Common Stock with an exercise price of $1.50 per share (the “Series
1 Warrants”), and (iii) Series 2 warrants to purchase 12,500 shares of Common Stock with an exercise price of $2.50 per share
(the “Series 2 Warrants”).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Through December 31, 2010, the Company had
entered into subscription agreements with certain strategic institutional and accredited investors in connection with the November
2010 Financing for a total of 68.8<b><i> </i></b>units.  The Company received gross proceeds from these subscriptions
in the amount of $1,720,000.   The Company received proceeds of $100,000 in the form of extinguishment of a Short-Term
Note issued by the Company on September 28, 2010 (see Note 5), which included principal and interest.  Additionally,
the Company had received a commitment for an additional 11.4 Units for which the expected proceeds of $285,000 had not been received
as of December 31, 2010.  This was treated as a stock subscription receivable as of December 31, 2010.  The
proceeds of $285,000 were received and stock issued in January and February 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of December 31, 2010, the Company issued
an aggregate of 1,720,000 shares of Common Stock and under commitments for an additional 11.4 Units was obligated to issue an additional
285,000 shares and an aggregate of 1,002,500 Series 1 Warrants and 1,002,500 Series 2 Warrants to the investors.   These
warrants are immediately exercisable and expire three years after issuance. The exercise price is subject to adjustment for stock
splits, combinations or similar events.  An exercise under these warrants may not result in the holder beneficially owning
more than 4.99% or 9.99%, as applicable, of all of the Common Stock outstanding at the time; provided, however, that a holder may
waive the foregoing provision upon sixty-one (61) days’ advance written notice to the Company.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In 2011, the Company entered into a subscription
agreement with certain strategic institutional and accredited investors in connection with the November 2010 Financing for a total
of 35.66<b><i> </i></b>Units.  The Company received proceeds from these subscriptions in the amount of $891,500,
which included proceeds of $25,000 in the form of extinguishment of a 2010 Short Term Promissory Note issued by the Company on
September 24, 2010 (see Note 5). Pursuant to these November 2010 Financing closings that occurred in 2011, the Company issued an
aggregate of 445,750 Series 1 Warrants and 445,750 Series 2 Warrants to the investors.  </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>December 2011 Financing</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 5, 2011, the Company entered
into purchase agreements with certain strategic investors relating to the issuance and sale of an aggregate of 2,398,949 shares
of Common Stock, par value $0.01, and warrants to purchase an aggregate of 959,582 shares of Common Stock.  The Common
Stock and warrants to purchase Common Stock were sold in units, with each unit consisting of (i) one share of Common Stock and
(ii) a warrant to purchase 0.4 of a share of Common Stock, at a public offering price of $2.25 per unit.  The warrants
will become exercisable six months after the date of issuance at an exercise price of $3.00 per share, and will expire three years
from the date of issuance.  The Company issued 2,398,949 shares on December 7, 2011, raising $5,397,625.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company did not use a placement agent or
underwriter in connection with these offerings.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Placement Agent Arrangements</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On June 30, 2009, the Company entered into
an engagement letter with Burnham Hill Partners LLC (“Burnham”) pursuant to which Burnham provided placement agent
services to the Company in connection with the Series B Financing (see Note 7). The Company agreed to pay Burnham (a) a cash fee
of $200,000 (the “Series B Fee”) which was due and payable upon the earlier of (i) the Company having a net cash balance
in excess of $2,000,000 or (ii) October 1, 2009; and (b) warrants to acquire 400,000 shares of Common Stock, with a term of five
years, an exercise price per share equal to 105% of the closing bid price of our Common Stock on June 30, 2009.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 30, 2009, the Company and Burnham
entered into a letter agreement (the “Burnham Letter”) extending the due date of the Series B Fee. The Letter provides
that the Fee is due and payable by the Company upon the earlier of (i) the Company having a cash balance in excess of $2,000,000
or (ii) March 31, 2010.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On March 16, 2010, Burnham LLC agreed that
the Company does not owe Burnham any fees that may have been payable pursuant to any and all previous agreements between Burnham
and the Company. Accordingly, the Company recorded a gain on extinguishment of financing fee payable of $200,000 in 2010.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 4, 2010, the Company entered into
an engagement letter with Burnham pursuant to which Burnham provided placement agent services to the Company in connection with
the February Financing.  The Company agreed to pay Burnham for its services as follows: (a) a cash fee equal to seven
percent (7%) of the gross cash proceeds received by the Company in connection with the February Financing from investors Burnham
directly introduced to the February Financing; and (b) warrants to acquire a number of shares of Common Stock equal to 10% of the
number of Shares issued to the investors directly introduced to the February Financing by Burnham at a per share exercise price
equal to the exercise price of the Warrants and with such other terms and conditions as are equal or substantially similar to those
included in the Warrants.  The Company also agreed to pay Burnham’s reasonable out of pocket expenses incurred
in connection with the February Financing in an amount not to exceed $5,000.  Burnham received a cash placement fee of
$29,925 and the Company issued to Burnham and/or its designees and assignees warrants to purchase 28,500 shares of Common Stock.
The fair value of these warrant shares was determined to be approximately $48,000 as of February 3, 2010 which was recorded as
both a debit and credit to additional paid-in capital as a stock issuance cost.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 4, 2010, the Company entered into
an engagement letter with Boenning & Scattergood, Inc. (“Boenning”) pursuant to which Boenning provided placement
agent services to the Company in connection with the February Financing.  The Company agreed to pay Boenning for its
services as follows: (a) a cash fee equal to seven percent (7%) of the gross cash proceeds received by the Company in connection
with the February Financing from investors Boenning directly introduced to the February Financing; and (b) warrants to acquire
a number of shares of Common Stock equal to 10% of the number of shares of Common Stock issued to the investors directly introduced
to the February Financing by Boenning at a per share exercise price equal to the exercise price of the Warrants and with such other
terms and conditions as are equal or substantially similar to those included in the Warrants.  The Company also agreed
to pay Boenning’s reasonable out of pocket expenses incurred in connection with the February Financing in an amount not to
exceed $5,000. Boenning received a cash placement fee of $110,410 and the Company issued to Boenning and/or its designees and assignees
warrants to purchase 100,399 shares of Common Stock. The fair value of these warrant shares was determined to be approximately
$169,000 as of February 3, 2010 which was recorded as both a debit and credit to additional paid-in capital as a stock issuance
cost.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 15, 2010, the Company retained
LifeTech Capital, a division of Aurora Capital, LLC, as a placement agent (“LifeTech”).  The Company agreed
to pay LifeTech for its services as follows: (a) a cash fee equal to seven percent (7%) of the gross cash proceeds in excess of
$150,000 received by the Company in connection with the November 2010 Financing from investors introduced to the November 2010
Financing by LifeTech; and (b) warrants to acquire a number of shares of Common Stock equal to 10% of the securities sold to investors
introduced to the November 2010 Financing by LifeTech.  The warrants are identical to those issued to the investors in the
November 2010 Financing, except that they include a cashless exercise provision.  LifeTech also received an up-front cash
fee of $10,000 for financial advisory services.  In connection with the November 2010 Financing, the Company paid cash fees
of $8,750 and $7,875 in 2010 and 2011, respectively, and issued LifeTech warrants to purchase 13,750 shares of Common Stock at
an exercise price of $1.50 per share and 13,750 shares of Common Stock at an exercise price of $2.50 per share with a combined
fair value of approximately $25,000 which was recorded as non-cash stock issuance cost in 2010. The Company issued LifeTech warrants
to purchase 5,625 shares of Common Stock at an exercise price of $1.50 per share and warrants to purchase 5,625 shares of Common
Stock at an exercise price of $2.50 per share, for a combined fair value of approximately $11,000 which was recorded as a non-cash
stock issuance cost in 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 29, 2010, the Company also retained
Monarch Capital Group, LLC as a placement agent (“Monarch”).  The Company agreed to pay Monarch for its services
as follows: (a) a cash fee equal to seven percent (7%) of the gross cash proceeds received by the Company in connection with the
November 2010 Financing from investors introduced to the November 2010 Financing by Monarch; and (b) warrants to acquire a number
of shares of Common Stock equal to 10% of the securities sold to investors introduced to the November 2010 Financing by Monarch. 
The warrants are identical to those issued to the investors in the November 2010 Financing.  The Company paid cash fees to
Monarch of $29,750 and $19,250 in 2010 and 2011, respectively. The Company has issued Monarch warrants to purchase 21,250 shares
of Common Stock at an exercise price of $1.50 per share and 21,250 shares of Common Stock at an exercise price of $2.50 per share
pursuant to this arrangement with a combined fair value of approximately $42,000 which was recorded as non-cash stock issuance
cost in 2010. The Company issued Monarch warrants to purchase 13,750 shares of Common Stock at an exercise price of $1.50 per share
and warrants to purchase 13,750 shares of Common Stock at an exercise price of $2.50 per share, for a combined fair value of approximately
$30,000 which was recorded as a non-cash stock issuance cost in 2011.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Stock Issued in Exchange for Services</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended December 31, 2011, the
Company issued 138,000 shares of Common Stock with a fair value of $449,000 to three vendors in exchange for investor relations
and business development services.  The Company recorded $449,000 of Selling, General and Administrative expense related
to these issuances, which represents the fair value of the related stock at the time of issuance.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Exercise of Common Stock Warrants</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i> </i></b>      During
2011, warrants to purchase 6,615,298 shares of Common Stock were voluntarily exercised, resulting in cash proceeds to the Company
of approximately $6,628,000. No such warrant exercises in exchange for cash occurred in 2010.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During 2011 and 2010, warrants to purchase
1,419,470 and 143,793 shares of Common Stock were voluntarily exercised through cashless exercise provisions, resulting in the
issuance of 744,243 and 35,714 shares of Common Stock, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the year ended December 31, 2011, the
Company contacted certain holders of its warrants to encourage them to exercise their warrants voluntarily by reducing the exercise
prices, provided they elected to simultaneously exercise for cash proceeds. Warrants to purchase an aggregate of 4,548,928 shares
of Common Stock were exercised during the year ended December 31, 2011 and cash proceeds of $5,207,239 from these transactions
were received.  As a result of the reductions in exercise price, the Company recorded $4,471,631in deemed dividends for
the year ended December 31, 2011 in the Consolidated Statement of Operations.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In 1997, the Company adopted its 1997 Long-Term
Incentive and Stock Option Plan (the “1997 Plan”). The Company may not grant any additional shares under the 1997 Plan.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with the Company’s strategic
merger with ChoiceTel in 2002, the Company assumed options to purchase 86,567 shares of Common Stock or all outstanding options
under the 1999 Sontra Medical, Inc. Stock Option and Incentive Plan (the “1999 Plan”). The Company may not grant any
additional shares under the 1999 Plan.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In March 2003, the Company’s shareholders
approved its 2003 Stock Option and Incentive Plan (the “2003 Plan”). Pursuant to the 2003 Plan, the Company’s
Board of Directors (or committees and/or executive officers delegated by the Board of Directors) may grant incentive and nonqualified
stock options, restricted stock and other stock-based awards to the Company’s employees, officers, directors, consultants
and advisors. As of December 31, 2011, the maximum aggregate number of shares that may be authorized for issuance under the 2003
Plan for all periods is 1,600,000 shares.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In May 2008, the Company’s shareholders
approved the Echo Therapeutics, Inc. 2008 Equity Compensation Plan (the “2008 Plan”). The 2008 Plan provides for grants
of incentive stock options to employees and nonqualified stock options and restricted Common Stock to employees, consultants and
non-employee directors of the Company. On July 12, 2010, the shareholders of the Company voted in favor of the Board of Directors’
recommendation to increase the number of shares authorized for issuance under the 2008 Plan from 2,700,000 shares to 4,700,000
shares.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The tables below show the remaining shares
available for future grants for each plan and the outstanding shares.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td colspan="14" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Stock Option Plans</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right; font-weight: bold"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: right; font-weight: bold">1997</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right; font-weight: bold"> </td>
<td style="padding-bottom: 1.2pt; text-align: right; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: right; font-weight: bold">1999</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right; font-weight: bold"> </td>
<td style="padding-bottom: 1.2pt; text-align: right; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: right; font-weight: bold">2003</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right; font-weight: bold"> </td>
<td style="padding-bottom: 1.2pt; text-align: right; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: right; font-weight: bold">2008</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right; font-weight: bold"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify; font-weight: bold; text-decoration: underline">Shares Available For Issuance</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td colspan="2" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td colspan="2" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td colspan="2" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td colspan="2" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 45%; text-align: justify">Total reserved for stock options and restricted stock</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 8%; text-align: right">150,000</td>
<td nowrap="nowrap" style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 8%; text-align: right">68,138</td>
<td nowrap="nowrap" style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 8%; text-align: right">1,600,000</td>
<td nowrap="nowrap" style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 8%; text-align: right">4,700,000</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td>
<td nowrap="nowrap" style="width: 10%; text-align: right"> </td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Net restricted stock issued net of cancellations</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(161,250</td>
<td nowrap="nowrap" style="text-align: right">)</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(1,504,750</td>
<td nowrap="nowrap" style="text-align: justify">)</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Stock options granted</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(174,482</td>
<td nowrap="nowrap" style="text-align: right">)</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(86,567</td>
<td nowrap="nowrap" style="text-align: right">)</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(1,544,491</td>
<td nowrap="nowrap" style="text-align: right">)</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(1,845,000</td>
<td nowrap="nowrap" style="text-align: justify">)</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Add back options cancelled before exercise</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">146,028</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">54,750</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">603,241</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">216,666</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.2pt; text-align: justify">Options cancelled by plan vote</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(121,546</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right">)</td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(36,321</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right">)</td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.4pt; text-align: justify">Remaining shares available for future grants</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">-</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">-</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">497,500</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">1,566,916</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td colspan="16" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold; text-decoration: underline">Outstanding Options and Restricted Stock</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td nowrap="nowrap" style="border-bottom: black 1.5pt solid; text-align: right">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: right"><b>Not Pursuant </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: right"><b>to a Plan</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Total granted</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">174,482</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">86,567</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,544,491</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,845,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td nowrap="nowrap" style="text-align: right">3,100,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Less:  Cancelled restricted stock</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td nowrap="nowrap" style="text-align: right">-</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Options cancelled</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(146,028</td>
<td nowrap="nowrap" style="text-align: right">)</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(54,750</td>
<td nowrap="nowrap" style="text-align: right">)</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(603,241</td>
<td nowrap="nowrap" style="text-align: right">)</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(216,666</td>
<td nowrap="nowrap" style="text-align: justify">)</td>
<td nowrap="nowrap" style="text-align: right">(1,383,334</td>
<td nowrap="nowrap" style="text-align: justify">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: justify">Options exercised</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(8,454</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right">)</td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(27,964</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right">)</td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(270,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right">)</td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(78,334</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify">)</td>
<td nowrap="nowrap" style="border-bottom: black 1.5pt solid; text-align: right">566,666</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.2pt; text-align: justify">Net shares outstanding before restricted stock</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">20,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">3,853</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">671,250</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">1,550,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td nowrap="nowrap" style="border-bottom: black 1.5pt solid; text-align: right">1,150,050</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: justify">Net restricted stock issued net of cancellations</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">-</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">161,250</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">1,504,750</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td nowrap="nowrap" style="border-bottom: black 1.5pt solid; text-align: right">64,844</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: justify">Outstanding shares at December 31, 2011</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">20,000</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">3,853</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">832,500</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">3,054,750</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td nowrap="nowrap" style="border-bottom: black 2.25pt double; text-align: right"> 1,241,844</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Share-Based Compensation - Options</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">For options issued and outstanding during the
years ended December 31, 2011 and 2010, the Company recorded additional paid-in capital and non-cash compensation expense of $836,866
and $164,810, respectively, each net of estimated forfeitures.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt 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 option pricing model that uses the assumptions noted in the following table. Expected
volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term
of the options. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the consolidated
financial statements, to estimate option exercise and employee termination within the valuation model. The expected term of options
granted under the Company’s stock plans, all of which qualify as “plain vanilla,” is based on the average of
the contractual term (generally 10 years) and the vesting period (generally 24 to 42 months) as permitted under SEC Staff
Accounting Bulletin Nos. 107 and 110. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent
with the option. Restricted stock grants are valued based on the closing market price for the Company’s Common Stock on the
grant date.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The assumptions used principally for options
granted to employees in the years ended December 31, 2011 and 2010 were as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="text-align: justify"> </td>
<td style="text-align: justify; font-weight: bold"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">2011</td>
<td nowrap="nowrap" style="text-align: justify; font-weight: bold"> </td>
<td style="text-align: justify; font-weight: bold"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">2010</td>
<td nowrap="nowrap" style="text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 70%; text-align: justify">Risk-free interest rate</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: center"> </td>
<td style="width: 12%; text-align: center">1.80% - 3.47</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify">%</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: center"> </td>
<td style="width: 12%; text-align: center">2.43% - 3.96</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Expected dividend yield</td>
<td style="text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="text-align: center">—</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="text-align: center">—</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Expected term (employee grants)</td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: center">6.5 years</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: center">6.75 years</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Forfeiture rate (excluding fully vested options)</td>
<td style="text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="text-align: center">15</td>
<td nowrap="nowrap" style="text-align: justify">%</td>
<td style="text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="text-align: center">0%-37</td>
<td nowrap="nowrap" style="text-align: justify">%</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Expected volatility</td>
<td style="text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="text-align: center">137% - 142</td>
<td nowrap="nowrap" style="text-align: justify">%</td>
<td style="text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="text-align: center">142% - 150</td>
<td nowrap="nowrap" style="text-align: justify">%</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A summary of option activity under the Company’s
stock plans and options granted to officers of the Company outside any plan as of December 31, 2011 and changes during the year
then ended is presented below:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b><u>Options</u></b></p></td>
<td style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center">
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>  </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Shares</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center">
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>  </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Weighted-</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Average</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Exercise</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Price</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center">
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Weighted-</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Average</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Remaining</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Contractual</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Term</b></p></td>
<td style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center">
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>  </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Aggregate</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Intrinsic</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Value</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Outstanding at January 1, 2011</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">3,029,030</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right">$</td>
<td style="text-align: right">0.87</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Granted</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,375,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right">$</td>
<td style="text-align: right">3.11</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Exercised</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(835,334</td>
<td nowrap="nowrap" style="text-align: justify">)</td>
<td style="text-align: justify"> </td>
<td style="text-align: right">$</td>
<td style="text-align: right">0.74</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: justify">Forfeited or expired</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(173,593</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify">)</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">$</td>
<td style="border-bottom: black 1.5pt solid; text-align: right">3.34</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td colspan="2" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 51%; padding-bottom: 2.4pt; text-align: justify">Outstanding at December 31, 2011</td>
<td style="width: 1%; padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="width: 10%; border-bottom: black 2.25pt double; text-align: right">3,395,103</td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="width: 1%; padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="width: 10%; border-bottom: black 2.25pt double; text-align: right">1.68</td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="width: 10%; border-bottom: black 2.25pt double; text-align: right">7.11 years</td>
<td style="width: 1%; padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="width: 1%; border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="width: 10%; border-bottom: black 2.25pt double; text-align: right">3,592,355</td>
<td nowrap="nowrap" style="width: 1%; padding-bottom: 2.4pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.4pt; text-align: justify">Exercisable at December 31, 2011</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">2,200,099</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">0.93</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">6.10 years</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">3,381,738</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The weighted-average grant-date fair value
of options granted during the year ended December 31, 2011 was $2.21 per share. As of December 31, 2011, there was approximately
$2,362,000 of total unrecognized compensation expense related to non-vested share-based option arrangements. With the exception
of the unrecognized share-based compensation related to certain restricted stock grants to officers and employees that contain
performance conditions related to United States Food and Drug Administration (FDA) approval for Symphony or the sale of the
Company, unrecognized compensation is expected to be recognized over the next 12 months.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Share-Based Compensation – Restricted
Stock</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">For restricted stock issued and outstanding
during the years ended December 31, 2011 and 2010, the Company incurred non-cash compensation expense of $323,463 and $393,249,
respectively, each net of estimated forfeitures.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of December 31, 2011, the Company had outstanding
restricted stock grants of 1,819,594 shares with a weighted-average grant-date value of $1.72. Of the outstanding restricted stock
grants, 11,250 shares have not yet vested. A summary of the status of the Company’s nonvested restricted stock grants as
of December 31, 2011 and changes during the year ended December 31, 2011 is presented below.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b><u>Non-vested Shares</u></b></p></td>
<td style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center">
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>  </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Shares</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center">
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Weighted-</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Average</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Grant-Date</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Fair Value</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 70%; text-align: justify">Non-vested at January 1, 2011</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 12%; text-align: right">1,629,594</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right">$</td>
<td style="width: 12%; text-align: right">1.12</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Granted</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">680,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right">$</td>
<td style="text-align: right">3.38</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Vested</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(65,000</td>
<td nowrap="nowrap" style="text-align: justify">)</td>
<td style="text-align: justify"> </td>
<td style="text-align: right">$</td>
<td style="text-align: right">2.82</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: justify">Forfeited</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(425,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify">)</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="text-align: right">$</td>
<td style="padding-bottom: 1.2pt; text-align: right">1.02</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: justify">Non-vested at December 31, 2011</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">1,819,594</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="text-align: right">$</td>
<td style="padding-bottom: 2.4pt; text-align: right">1.72</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">      Of the 1,819,594
shares of non-vested restricted stock, vesting criteria are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; text-align: justify">·  </td>
<td style="text-align: justify">1,559,594 shares of restricted stock vest upon the FDA approval of Symphony or the sale of the Company;</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; text-align: justify">·  </td>
<td style="text-align: justify">220,000 shares of restricted stock vest upon the sale of the Company; and</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; text-align: justify">·  </td>
<td style="text-align: justify">40,000 shares of restricted stock vest over 4 years, at each of the anniversary dates of the grants.</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">   </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">       As of
December 31, 2011, there was approximately $3,456,000 of total unrecognized compensation expense related to non-vested share-based
restricted stock arrangements granted under the Company’s stock plans. As of December 31, 2011, the Company cannot estimate
the timing of completion of the performance vesting requirements required by certain of these restricted stock grant arrangements.
Compensation expense related to the Restricted Share Grants will be recognized when the Company concludes that achievement of the
performance vesting conditions is probable.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company uses valuation methods and assumptions
that consider among other factors the fair value of the underlying stock, risk-free interest rate, volatility, expected life and
dividend rates in estimating fair value for the warrants considered to be derivative instruments.  The following assumptions
were utilized by the Company:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2011</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt"> </td>
<td style="padding-bottom: 1.2pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2010</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 70%; text-align: justify">Risk-free interest rate</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 12%; text-align: right">3.36% -3.75</td>
<td nowrap="nowrap" style="width: 1%; text-align: right">%</td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 12%; text-align: right">2.58% -3.71</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Expected dividend yield</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">—</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">—</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Expected term (contractual term)</td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: right">2 years</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td colspan="2" style="text-align: right">2 - 5 years</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Forfeiture rate</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">0</td>
<td nowrap="nowrap" style="text-align: right">%</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">0</td>
<td nowrap="nowrap" style="text-align: justify">%</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Expected volatility</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">142</td>
<td nowrap="nowrap" style="text-align: right">%</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">141% - 150</td>
<td nowrap="nowrap" style="text-align: justify">%</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Expected volatilities are based on historical
volatility of the Common Stock using historical periods consistent with the expected term of the warrant. The risk-free rate is
based on the yield of a U.S. Treasury security with a term consistent with the warrant.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">In the years ended December 31, 2011 and 2010,
the Company issued warrants with a fair value of approximately $11,191,000 and $617,000, respectively.  Included in the
warrant fair value are warrants with a fair value of approximately $41,000 and $469,000 recorded as a debit and credit to additional
paid-in capital as stock issuance costs related to the 2011 and 2010 financings, respectively (see Note 8).  The warrants
issued in the years ended December 31, 2011 and 2010 generally have a term of 2 to 5 years, a non-redeemable feature, and a cashless
exercise provision. Certain warrants have a standard weighted average anti-dilution protection and piggy back registration rights.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">    </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">At December 31, 2011,
the Company had the following outstanding warrants:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: justify; font-weight: bold"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">Number of</td>
<td nowrap="nowrap" style="text-align: center; font-weight: bold"> </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></tr>
<tr style="vertical-align: bottom">
<td style="text-align: left"> </td>
<td style="text-align: center; font-weight: bold"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">Shares</td>
<td nowrap="nowrap" style="text-align: center; font-weight: bold"> </td>
<td style="text-align: center; font-weight: bold"> </td>
<td colspan="2" style="text-align: center; font-weight: bold">Exercise</td>
<td nowrap="nowrap" style="text-align: center; font-weight: bold"> </td>
<td style="text-align: center; font-weight: bold">Date of</td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: left"> </td>
<td style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Exercisable</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Price</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Expiration</td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: left; font-weight: bold">Outstanding warrants accounted for as derivative warrant liability:</td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td colspan="2" style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 55%; text-align: left">Granted to investors and placement agent in private placement</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 9%; text-align: right">320,703</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: center">$</td>
<td style="width: 9%; text-align: center">1.28</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td>
<td style="width: 21%; text-align: center">6/15-7/16/2012</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to financial investment advisor</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">3,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.38</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">7/25/2012</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to financial advisor in connection with an acquisition</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">61,625</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.75</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">9/14/2012</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to financial investment advisor</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">7,500</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.30</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/11/2013</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">154,990</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">0.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/11/2013</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: left">Granted to investors in private placement</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">177,324</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="padding-bottom: 1.2pt; text-align: center">1.50</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: center">3/24/2013</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: left">Total outstanding warrants accounted for as derivative warrant liability</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">725,142</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.4pt; text-align: left">Weighted average exercise price</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: center">$</td>
<td style="border-bottom: black 2.25pt double; text-align: center">1.21</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: left">Weighted average time to expiration in years</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: center">0.84 years</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><b>Outstanding warrants accounted for as equity:</b></p></td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to investors in private placement of preferred stock</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">32,249</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.00</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">9/30/2013</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to investors in private placement of preferred stock</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">198,333</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">10/28/2013</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to investors in private placement of preferred stock</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">70,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">0.75</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">10/31/2013</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to investors in private placement of preferred stock</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">390,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">0.75</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/28/2014</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to vendor</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">50,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">0.70</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">3/2/2012</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to vendor</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">60,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">0.60</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">3/15/2014</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">400,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.59</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">6/30/2014</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">768,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.00</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">11/13/2014</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to placement agent in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">256,906</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">11/13/2014</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to vendor</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">50,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.00</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">12/1/2012</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">63,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.00</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">12/3/2014</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">341,325</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.25</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/9/2015</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to placement agents in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">28,500</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.25</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/9/2015</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to investor in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">6,375</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.25</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">3/18/2015</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to financial investment advisor</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">100,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/10/2013</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to financial investment advisor</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">10,367</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.00</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">3/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">187,500</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">187,500</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to placement agent in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">5,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to placement agent in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">5,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">35,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">11/26/2012</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">35,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">11/26/2012</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">495,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">512,500</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to placement agent in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">30,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to placement agent in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">30,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">245,750</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">245,750</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to placement agent in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">18,125</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to placement agent in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">18,125</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">255,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">280,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to placement agent in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,250</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to placement agent in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,250</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">250,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">1.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/8/2013</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left">Granted to investors in private placement</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">250,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="text-align: center">2.50</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center">2/8/2013</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.2pt; text-align: left">Granted to investors in private placement</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">959,582</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="text-align: center">$</td>
<td style="padding-bottom: 1.2pt; text-align: center">3.00</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: center">12/7/2014</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.4pt; text-align: left">Total outstanding warrants accounted for as equity</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">6,802,387</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: left">Weighted average exercise price</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: center">$</td>
<td style="border-bottom: black 2.25pt double; text-align: center">1.99</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.4pt; text-align: left">Weighted average time to expiration in years</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: center">1.22 years</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; font-weight: bold"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; font-weight: bold">Totals for all warrants outstanding:</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="text-align: center"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: left">Total</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">7,527,529</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="text-align: center"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.4pt; text-align: left">Weighted average exercise price</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: center">$</td>
<td style="border-bottom: black 2.25pt double; text-align: center">1.92</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: left">Weighted average time to expiration in years</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td>
<td style="padding-bottom: 2.4pt; text-align: center"> </td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: center">1.19 years</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">A summary of warrant activity in the year ended
December 31, 2011 is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: center">
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"><b><u>Warrants</u></b></p></td>
<td style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Shares</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center">
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Weighted-</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Average</b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: center"><b>Exercise Price</b></p></td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 70%; text-align: justify">Outstanding at January 1, 2011</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 12%; text-align: right">10,336,292</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right">$</td>
<td style="width: 12%; text-align: right">1.82</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Granted</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">5,702,835</td>
<td nowrap="nowrap" style="text-align: justify"> </td>
<td style="text-align: justify"> </td>
<td style="text-align: right">$</td>
<td style="text-align: right">2.17</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Exercised</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(8,034,768</td>
<td nowrap="nowrap" style="text-align: justify">)</td>
<td style="text-align: justify"> </td>
<td style="text-align: right">$</td>
<td style="text-align: right">1.16</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: justify">Forfeited or expired</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(476,830</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify">)</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">$</td>
<td style="border-bottom: black 1.5pt solid; text-align: right">5.80</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: justify">Outstanding at December 31, 2011</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">7,527,529</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">1.92</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt"></p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">No provision or benefit for federal or state
income taxes has been recorded because the Company has incurred a net loss for all periods presented and has provided a valuation
allowance against its deferred tax assets.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">At December 31, 2011, the Company had federal
net operating loss carryforwards of approximately $55,000,000, which will expire in varying amounts beginning in 2018. The Company
also had research and development tax credit carryforwards of approximately $1,340,000 which will begin to expire in 2018 unless
previously utilized. The United States Tax Reform Act of 1986 contains provisions that may limit the Company’s net operating
loss carryforwards available to be used in any given year in the event of significant changes in the ownership interests of significant
stockholders, as defined.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Significant components of the Company’s
net deferred tax asset are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">December 31,</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2011</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td style="padding-bottom: 1.2pt; text-align: center; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2010</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 70%; text-align: justify">Deferred Tax Assets/(Liabilities):</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 12%; text-align: right"> </td>
<td nowrap="nowrap" style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 12%; text-align: right"> </td>
<td nowrap="nowrap" style="width: 1%; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Net operating loss carryforwards</td>
<td style="text-align: justify"> </td>
<td style="text-align: right">$</td>
<td style="text-align: right">19,913,000</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">$</td>
<td style="text-align: right">17,594,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Research credit carryforward</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,344,000</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1,518,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Acquired intangible assets, net</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(3,781,000</td>
<td nowrap="nowrap" style="text-align: right">)</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(3,781,000</td>
<td nowrap="nowrap" style="text-align: justify">)</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: justify">Other temporary differences</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">156,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">141,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"> Total deferred tax assets, net</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">17,632,000</td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">15,472,000</td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: justify">Valuation allowance</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(17,632,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right">)</td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(15,472,000</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify">)</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: justify">Net deferred tax asset</td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">—</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">$</td>
<td style="border-bottom: black 2.25pt double; text-align: right">—</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company has maintained a full valuation
allowance against its deferred tax items in both 2011 and 2010. A valuation allowance is required to be recorded when it is more
likely than not that some portion or all of the net deferred tax assets will not be realized. Since the Company cannot be assured
of realizing the net deferred tax asset, a full valuation allowance has been provided.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company has no uncertain tax positions
as of December 31, 2011 and 2010 that would affect its effective tax rate. The Company does not anticipate a significant change
in the amount of unrecognized tax benefits over the next twelve months. Since the Company is in a loss carryforward position, the
Company is generally subject to US federal and state income tax examinations by tax authorities for all years for which a loss
carryforward is available.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Income taxes computed using the federal statutory
income tax rate differs from the Company’s effective tax rate primarily due to the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">Years Ended December 31,</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2011</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right; font-weight: bold"> </td>
<td style="padding-bottom: 1.2pt; text-align: right; font-weight: bold"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center; font-weight: bold">2010</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify; font-weight: bold"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 70%; text-align: justify">Income taxes benefit (expense) at statutory rate</td>
<td style="width: 1%; text-align: justify"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 12%; text-align: right">35.0</td>
<td nowrap="nowrap" style="width: 1%; text-align: right">%</td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 1%; text-align: right"> </td>
<td style="width: 12%; text-align: right">35.0</td>
<td nowrap="nowrap" style="width: 1%; text-align: justify">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">State income tax, net of federal benefit</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(2.2</td>
<td nowrap="nowrap" style="text-align: right">)%</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(0.5</td>
<td nowrap="nowrap" style="text-align: justify">)%</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Permanent Differences:</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td nowrap="nowrap" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Derivative loss</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(6.2</td>
<td nowrap="nowrap" style="text-align: right">)%</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">3.1</td>
<td nowrap="nowrap" style="text-align: justify">%</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Loss on extinguishment of debt</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">0.0</td>
<td nowrap="nowrap" style="text-align: right">%</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">1.6</td>
<td nowrap="nowrap" style="text-align: justify">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Stock compensation expense</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(2.9</td>
<td nowrap="nowrap" style="text-align: right">)%</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(1.4</td>
<td nowrap="nowrap" style="text-align: justify">)%</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">Stock for services</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(1.6</td>
<td nowrap="nowrap" style="text-align: right">)%</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(8.6</td>
<td nowrap="nowrap" style="text-align: justify">)%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify">Other</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">0.0</td>
<td nowrap="nowrap" style="text-align: right">%</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(3.5</td>
<td nowrap="nowrap" style="text-align: justify">)%</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify">R&D credits</td>
<td style="text-align: justify"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">(0.6</td>
<td nowrap="nowrap" style="text-align: right">)%</td>
<td style="text-align: right"> </td>
<td style="text-align: right"> </td>
<td style="text-align: right">2.5</td>
<td nowrap="nowrap" style="text-align: justify">%</td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.2pt; text-align: justify">Change in valuation allowance</td>
<td style="padding-bottom: 1.2pt; text-align: justify"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(21.5</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: right">)%</td>
<td style="padding-bottom: 1.2pt; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right">(28.2</td>
<td nowrap="nowrap" style="padding-bottom: 1.2pt; text-align: justify">)%</td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="padding-bottom: 2.4pt; text-align: justify"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">0.0</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: right">%</td>
<td style="padding-bottom: 2.4pt; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right">0.0</td>
<td nowrap="nowrap" style="padding-bottom: 2.4pt; text-align: justify">%</td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">On January 27, 2012, the Company granted an
aggregate of 218,750 restricted shares of Common Stock to its executive officers pursuant to Restricted Stock Agreements. <i> </i>The
grants were issued under the 2008 Plan.  Subject to the terms and conditions of the Restricted Stock Agreements, the
restricted shares will vest in equal installments on each of the first, second, third and fourth anniversaries of the grant date.  The
fair value of the restricted stock grants was approximately $446,000.</p>
<p style="margin: 0pt"></p>
2
5059
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3015974
27045792
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38543944
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154.3940
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836866
250000
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">Harry G. Mitchell, the former Chief Operating
Officer of the Company, resigned from that position in June 2011.  On August 25, 2011, Mr. Mitchell filed a complaint
in the Norfolk County Superior Court in Massachusetts against the Company and its Chief Executive Officer, Patrick T. Mooney, claiming,
among other things, that he resigned for good reason (as defined under his employment agreement) and was therefore entitled to
certain benefits and also to certain payments under state wage payment statutes.  Mr. Mitchell sought compensatory damages,
an award of attorneys’ fees and costs and other relief.  The Company responded to the complaint by serving a partial
motion to dismiss on September 28, 2011.  The Company had accrued approximately $400,000 in settlement liability as of
September 30, 2011 with respect to this matter, reflecting the Company’s best estimate then of probable loss exposure.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">On December 20, 2011,
the Company and Dr. Mooney entered into a Settlement and Release Agreement (the “Settlement Agreement”) with Mr.
Mitchell in order to allow the Company’s senior management team to focus its full attention on product development and
business operations.  In accordance with Settlement Agreement, the Company agreed to (i) pay Mr. Mitchell a
settlement payment in the gross amount of $125,000, to be paid in installments over a three month period, (ii) pay Mr.
Mitchell’s full monthly COBRA premium for six months, and (iii) fully vest 100,000 shares of restricted Common Stock
(the “Shares”) held by Mr. Mitchell.  The Shares were not fully vested until January 2012 when the
Company received confirmation of Mr. Mitchell’s dismissal of his lawsuit, thereby leaving an outstanding settlement
accrued liability of $290,000, representing the fair value of the Common Stock to be issued, in the Company’s
consolidated balance sheet as of December 31, 2011, which was fully satisfied in January 2011.</p>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt"><i>Ferndale License of Prelude </i>—
On May 27, 2009, the Company entered into a License Agreement with Ferndale pursuant to which the Company granted Ferndale a license
in North America and the United Kingdom to develop, assemble, use, market, sell and export Prelude for skin preparation prior to
the application of a topical analgesic or anesthetic cream for local dermal anesthesia or analgesia prior to a needle insertion
or IV procedure (the “Ferndale License”). The Ferndale License has a minimum term of 10 years from the date of the
first commercial sale of Prelude product components in North America or the United Kingdom.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company received a licensing fee of $750,000
upon execution of the Ferndale License. In addition, the Company will receive a payment of $750,000 within ninety (90) days after
receipt of the FDA’s 510(k) medical device clearance of Prelude. Ferndale will pay the Company an escalating royalty on net
sales of Prelude product components. The Company will also receive milestone payments based on Ferndale’s achievement of
certain net sales targets of the product components, as well as guaranteed minimum annual royalties.  The Company recognizes
the upfront, nonrefundable payments as revenue on a straight-line basis over the contractual or estimated performance period. Accordingly,
the Company determined that approximately $241,000 and $105,000 of the non-refundable license revenue was recognizable in the years
ended December 31, 2011 and 2010, respectively.  As of December 31, 2011, the Company has recognized the entire $750,000 as
license revenue.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt"><i>Other Revenue — </i>The Company has
retained contract engineering services in connection with product development pursuant to the Ferndale License and the Company
is reimbursed by Ferndale for the cost of product development engineering services. Other Revenue of approximately $145,000 and
$203,000 relates to product development costs incurred during the years ended December 31, 2011 and 2010, respectively, and received
from Ferndale. The expenses billed to the Company are included in Research and Development expenses on the Statements of Operations.
There was no markup on these expenses.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt"><i>Handok License of Symphony </i>— On
June 15, 2009, the Company entered into a License Agreement with Handok pursuant to which the Company granted Handok a license
to develop, use, market, sell and import Symphony for continuous glucose monitoring for use by medical facilities and/or individual
consumers in South Korea (the “Handok License”). The Handok License has a minimum term of 10 years from the date of
the first commercial sale of Symphony in South Korea.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company received a licensing fee of approximately
$500,000 upon execution of the Handok License. In addition, the Company will receive milestone payments upon receipt of the FDA’s
clearance of Symphony and upon the first commercial sale of Symphony in South Korea. Handok will also pay the Company a royalty
on net sales of Symphony. The Company also will receive milestone payments based on Handok’s achievement of certain other
targets.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22pt">The Company recognizes the upfront, nonrefundable
payments as revenue on a straight-line basis over the contractual or estimated performance period. Accordingly, the Company determined
that approximately $61,000 and $121,000 of the non-refundable license revenue was recognizable in the years ended December 31,
2011 and 2010, respectively. Approximately $124,000 is recognizable over the next 12 months and is shown as current deferred revenue.  The
approximately $62,000 that remains is recognizable as revenue beyond the 12 month period and is classified as non-current.</p>
<p style="margin: 0pt"></p>
1768
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