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<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">Echo
Therapeutics, Inc. (the “Company”) is a transdermal medical device company with significant expertise in advanced skin
permeation technology that is primarily focused on continuous glucose monitoring and needle-free drug delivery. The Company is
developing its Prelude® SkinPrep System (“Prelude”) 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 cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in"><font style="font: 10pt Symbol">·</font></td><td style="text-align: justify"><font style="font-size: 10pt">analyte
extraction, with the
Symphony® tCGM
System (“Symphony”)
for needle-free, continuous
glucose monitoring for
use in hospital critical
care units and for people
with diabetes; and</font></td></tr></table>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in"><font style="font: 10pt Symbol">·</font></td><td style="text-align: justify"><font style="font-size: 10pt">enhanced
needle-free drug delivery.</font></td></tr></table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical,
Inc., a Delaware corporation. All significant intercompany balances and transactions have been eliminated in consolidation.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles
(“GAAP”) in the United States consistent with those applied in, and should be read in conjunction with, the Company’s
audited consolidated financial statements and related footnotes for the year ended December 31, 2011 included in the Company’s
Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 15, 2012.
These unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which
are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of June 30, 2012
and its results of operations and cash flows for the interim periods presented and are not necessarily indicative of results for
subsequent interim periods or for the full year. The interim financial statements do not include all of the information and footnotes
required by GAAP for complete financial statements and allowed by the relevant SEC rules and regulations; however, the Company
believes that its disclosures are adequate to ensure that the information presented is not misleading. Certain amounts in prior
periods have been reclassified to conform to current presentation.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.2in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
accompanying consolidated financial statements have been prepared on a basis assuming that the Company is a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2012,
the Company had cash of approximately $3,111,000, working capital of approximately $1,795,000 and an accumulated deficit of approximately
$87,710,000. We will require additional capital to fund our product development, research, manufacturing and clinical programs
in accordance with our current projected level of operations. The Company has funded its operations in the past primarily through
debt and equity issuances. Management intends to pursue additional financing to fund its operations. Although management believes
that it will be successful in securing additional financing, no assurances can be given as to the success of these plans or that
such capital will be available to the Company in sufficient amounts to meet its operating cash needs or on terms acceptable to
the Company. The consolidated financial statements do not include any adjustments that might result from the outcome of these
uncertainties.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">As
of June 30, 2012, the Company held approximately $3,100,000 in cash and cash equivalents. The Company’s cash equivalents
consist solely of bank money market funds. From time to time, the Company may have cash balances in excess of federal insurance
limits. The Company has never experienced any previous losses related to these balances. All of the Company’s non-interest
bearing cash balances were fully insured at June 30, 2012 due to a temporary federal program in effect from December 31, 2010
through December 31, 2012. Under the program, there is no limit on the amount of insurance for eligible accounts. Beginning in
2013, insurance coverage will revert to $250,000 per depositor at each financial institution and non-interest bearing cash balances
may again exceed federally insured limits.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
Company’s intangible assets are related to the acquisition of assets from Durham Pharmaceuticals Ltd. in 2007 and are summarized
as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">  </font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom; background-color: transparent">
<td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="7" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30, 2012</td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2011</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-weight: bold; text-align: left; padding-left: 2.35pt"> </td><td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: right"><font style="font-size: 10pt">Estimated</font></td><td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: right"> </td><td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: right"><font style="font-size: 10pt"> Accumulated</font></td><td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: right"> </td><td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold"> </td>
<td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; text-align: right"> </td><td style="font-weight: bold; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: transparent">
<td style="font-weight: bold; text-align: left; padding-bottom: 1pt; padding-left: 2.35pt"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><font style="font-size: 10pt">     Life</font></td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><font style="font-size: 10pt">       Cost</font></td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><font style="font-size: 10pt"> Amortization</font></td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><font style="font-size: 10pt">Net</font></td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><font style="font-size: 10pt">Net</font></td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Contract related intangible asset:</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="width: 35%; text-align: left; padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 14.8pt">Cato Research discounted contract</td><td style="width: 2%; padding-bottom: 1pt"> </td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left"> </td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 10pt">3 years</font></td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right">355,000</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right">355,000</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right">—  </td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right">—  </td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Technology related intangible assets:</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 14.8pt">Patents for the AzoneTS-based product candidates and formulation</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"><font style="font-size: 10pt">6 years</font></td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,305,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,305,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,305,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 14.8pt">Drug Master Files containing formulation, clinical and safety documentation used by the FDA</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"><font style="font-size: 10pt">6 years</font></td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,500,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,500,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,500,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 14.05pt">In-process pharmaceutical products for 2 indications</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font-size: 10pt">6 years</font></td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">6,820,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">6,820,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">6,820,000</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 14.05pt">Total technology related intangible assets</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right"> </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">9,625,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">9,625,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">9,625,000</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Intangible assets, net</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">9,980,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">355,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">9,625,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">9,625,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">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 estimates may occur as early as 2013. The contract
related intangible asset was amortized over a three year period which ended in 2010.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">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. Beginning June 1, 2012, a lease amendment increased the total space
to 37,050 square feet and extended the expiration date to October 31, 2017.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.2in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">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. Beginning June 1, 2012, a lease amendment increased the total space to 7,861 square feet
and extended the expiration date to May 31, 2017.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.2in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">Future
minimum lease payments for each of the next 5 years under these operating leases are as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td colspan="3" style="text-align: justify"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Franklin</td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Philadelphia</td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total</td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: left"> </td><td style="text-align: right"><font style="font-size: 10pt">For the period ending December 31,</font></td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 1%; text-align: left"> </td><td style="width: 20%; text-align: right">2012</td><td style="width: 1%; text-align: left"> </td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 19%; text-align: right">209,000</td><td style="width: 1%; text-align: left"> </td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 19%; text-align: right">90,000</td><td style="width: 1%; text-align: left"> </td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 19%; text-align: right">299,000</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left"> </td><td style="text-align: right">2013</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">424,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">183,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">607,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"> </td><td style="text-align: right">2014</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">434,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">187,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">621,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left"> </td><td style="text-align: right">2015</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">444,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">192,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">636,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">2016</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">454,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">196,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">650,000</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font-size: 10pt">Total</font></td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,965,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">848,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">2,813,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </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: 0.25in"><font style="font-size: 10pt">The
Company’s facilities lease expense was approximately $74,000 and $53,000 for the three months ended June 30, 2012 and 2011,
respectively, and $151,000 and $86,000 for the six months ended June 30, 2012 and 2011, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">At
June 30, 2012 and December 31, 2011, the Company had outstanding warrants to purchase 7,268,974 and 7,527,529 shares of its Common
Stock, respectively. Included in these outstanding warrants at June 30, 2012 are warrants to purchase 516,587 shares that are
considered to be derivative financial instruments because the warrant agreements contain “down round” provisions whereby
the number of shares covered by the warrants is subject to change in the event of certain future dilutive stock issuances. The
fair value of these derivative instruments at June 30, 2012 was approximately $393,000, is considered Level 3 under the fair value
hierarchy on a recurring basis, and is included in Derivative Warrant Liability, a current liability, in the Consolidated Balance
Sheet. Changes in fair value of the derivative financial instruments are recognized in the Consolidated Statement of Operations
as a Derivative Warrant Liability Gain or Loss. The Derivative Warrant Liability Gain for the three and six months ended June
30, 2012 was approximately $370,000 and $602,000, respectively. The Derivative Warrant Liability Loss for the three and six months
ended June 30, 2011 was approximately $122,000 and $3,152,000, respectively.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.2in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
derivative warrant liability represents the risk exposure pertaining to the warrants and is based on the fair value of the underlying
common stock and the gain or loss on the derivative warrant liability is a result of the change in fair value of the underlying
common stock. For the six months ended June 30, 2012, holders exercised warrants with “down round” provisions to purchase
118,500 shares, which resulted in a reclassification of approximately $42,000 from the Derivative Warrant Liability to Additional
Paid-in Capital. For the six months ended June 30, 2011, holders exercised warrants with “down round” provisions to
purchase 602,693 shares, which resulted in a reclassification of approximately $2,171,000 from the Derivative Liability to Additional
Paid-in Capital.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
table below presents the changes in the derivative warrant liability for the six months ended June 30, 2012 and 2011:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="width: 56%; text-align: left; text-indent: 4.5pt; padding-left: 6.65pt">Derivative warrant liability as of January 1</td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1,035,337</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1,544,996</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: 22.5pt; padding-left: 6.65pt"><font style="font-size: 10pt">Total unrealized losses included in net loss <sup>(1)</sup>	</font></td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td style="font-family: Courier New, Courier, Monospace"> </td>
<td style="font-family: Courier New, Courier, Monospace; text-align: left"> </td><td style="font-family: Courier New, Courier, Monospace; text-align: right">2,191,147</td><td style="font-family: Courier New, Courier, Monospace; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="text-align: left; text-indent: 22.5pt; padding-left: 6.65pt"><font style="font-size: 10pt">Total realized losses included in net loss <sup>(1)</sup>	</font></td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td style="font-family: Courier New, Courier, Monospace"> </td>
<td style="font-family: Courier New, Courier, Monospace; text-align: left"> </td><td style="font-family: Courier New, Courier, Monospace; text-align: right">978,678</td><td style="font-family: Courier New, Courier, Monospace; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: 22.5pt; padding-left: 6.65pt"><font style="font-size: 10pt">Total unrealized gains included in net loss <sup>(1)</sup>	</font></td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(539,648</td><td style="text-align: left">)</td><td style="font-family: Courier New, Courier, Monospace"> </td>
<td style="font-family: Courier New, Courier, Monospace; text-align: left"> </td><td style="font-family: Courier New, Courier, Monospace; text-align: right">(17,917</td><td style="font-family: Courier New, Courier, Monospace; text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="text-align: left; text-indent: 22.5pt; padding-left: 6.65pt"><font style="font-size: 10pt">Total realized gains included in net loss <sup>(1)</sup>	</font></td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(61,633</td><td style="text-align: left">)</td><td style="font-family: Courier New, Courier, Monospace"> </td>
<td style="font-family: Courier New, Courier, Monospace; text-align: left"> </td><td style="font-family: Courier New, Courier, Monospace; text-align: right">—  </td><td style="font-family: Courier New, Courier, Monospace; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 33pt">Reclassification of derivative warrant liability to additional paid-in capital for derivative warrants exercised	</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(41,520</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="font-family: Courier New, Courier, Monospace; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-family: Courier New, Courier, Monospace; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-family: Courier New, Courier, Monospace; text-align: right">(2,170,726</td><td style="padding-bottom: 1pt; font-family: Courier New, Courier, Monospace; text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: 4.5pt; padding-left: 6.65pt">Derivative warrant liability as of June 30</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">392,536</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">2,526,178</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 6.65pt"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: left; text-indent: -13.7pt; padding-left: 24.5pt"><font style="font-size: 10pt; line-height: 94%">(1)</font><font style="font-family: Times New Roman, Times, Serif">   </font><font style="line-height: 94%">Included in derivative warrant liability gain or loss in the Consolidated Statement of Operations.</font></td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
Company is authorized to issue up to 40,000,000 shares of preferred stock with such rights, preferences and privileges as are
determined by the Board of Directors.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.2in; text-align: left; text-indent: -0.2in"><font style="font-size: 10pt"><b><i>Series
C Convertible Preferred Stock</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.2in; text-align: left"><font style="font-size: 10pt"><b><i> </i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
Company has authorized 10,000 shares of Series C Preferred Stock (the “Series C Stock”), of which 9,974.185 shares were
issued and outstanding as of June 30, 2012 and December 31, 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.2in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b><i>Series
D Convertible Preferred Stock</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
Company has authorized 3,600,000 shares of Series D Preferred Stock (the “Series D Stock”), of which 3,006,000 shares
were issued and outstanding as of June 30, 2012 and December 31, 2011.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
Company has authorized 150,000,000 shares of Common Stock, of which 39,615,344 and 38,543,944 shares were issued and outstanding
as of June 30, 2012 and December 31, 2011, respectively.</font></p>
<p style="font: 10pt/94% Times New Roman, Times, Serif; margin: 0; text-align: left; text-indent: 15pt"><font style="font-size: 10pt"><b><i> </i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b><i>Stock
Issued in Exchange for Services </i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b><i> </i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">During
the six months ended June 30, 2012 and 2011, the Company issued 28,666 and 100,000 shares, respectively, of Common Stock with
a fair value of $50,299 and $339,000, respectively, to vendors in exchange for their services. Expenses associated with these
transactions were included in Selling, General and Administrative Expenses in the Consolidated Statements of Operations.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">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 its 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 June 30, 2012, the maximum aggregate number of shares that may
be authorized for issuance under the 2003 Plan for all periods is 1,600,000 shares. As of June 30, 2012, there were 161,250 restricted
shares of Common Stock issued and options to purchase an aggregate of 514,000 shares of Common Stock outstanding under the 2003
Plan and 560,000 shares available for future grants.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">In
May 2008, the Company’s shareholders approved the 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 stock to employees,
consultants and non-employee directors of the Company. In July 2010, the Company’s shareholders approved an amendment to
the <font style="color: black">2008 Plan to increase the maximum number of shares of Common Stock available under the Plan by
2,000,000 shares to 4,700,000 shares. In June 2012, the Company’s shareholders approved an amendment to the 2008 Plan to
increase the maximum number of shares available under the Plan by 5,300,000 shares to 10,000,000 shares. </font>As of June 30,
2012, there were restricted shares of Common Stock issued and options to purchase an aggregate of 3,978,406 shares of Common Stock
outstanding under the 2008 Plan and 5,891,594 shares available for future grants.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.2in; text-align: left; text-indent: -0.2in"><font style="font-size: 10pt"><b><i></i></b></font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: justify; padding-bottom: 1pt; padding-left: 5.4pt"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><font style="font-size: 10pt">Stock Option Plans</font></td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right"> </td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-weight: bold; text-align: justify; padding-bottom: 1pt; padding-left: 5.4pt"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><font style="font-size: 10pt">2003 Plan</font></td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><font style="font-size: 10pt">2008 Plan</font></td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td><td style="padding-bottom: 1pt; font-weight: bold; text-align: right"> </td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="font-weight: bold; text-decoration: underline; text-align: justify; padding-left: 5.4pt">Shares Available For Issuance</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 46%; text-align: justify; text-indent: -7.9pt; padding-left: 7.9pt">Total reserved for stock options and restricted stock</td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right">1,600,000</td><td style="width: 1%; text-align: left"> </td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right">10,000,000</td><td style="width: 1%; text-align: left"> </td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right"> </td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-left: 5.4pt">Net restricted stock issued net of cancellations</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(161,250</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(2,208,406</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-left: 5.4pt">Stock options granted</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(1,544,491</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(2,275,000</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-left: 5.4pt">Add back options cancelled before exercise</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">678,491</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">375,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-bottom: 1pt; padding-left: 5.4pt">Options cancelled by plan vote</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt; text-align: right"> </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-bottom: 2.5pt; padding-left: 5.4pt">Remaining shares available for future grants</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">572,750</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">5,891,594</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-weight: bold; text-align: justify; padding-bottom: 1pt; padding-left: 5.4pt"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><font style="font-size: 10pt">Not Pursuant to a Plan</font></td><td style="padding-bottom: 1pt; font-weight: bold; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-left: 5.4pt">Total granted</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,544,491</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2,275,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">3,100,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-left: 5.4pt">Less:  Restricted stock cancelled</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; text-indent: 22.5pt; padding-left: 5.4pt">Options cancelled</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(678,491</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(375,000</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(1,383,334</td><td style="text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-bottom: 1pt; text-indent: 22.5pt; padding-left: 5.4pt">Options exercised</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(352,000</td><td style="padding-bottom: 1pt; text-align: left">) </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(130,000</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(666,666</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-bottom: 1pt; padding-left: 5.4pt">Net shares outstanding before restricted stock</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">514,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1,770,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1,050,000</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-bottom: 1pt; padding-left: 5.4pt">Net restricted stock issued net of cancellations</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">161,250</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">2,208,406</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">284,844</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-bottom: 2.5pt; padding-left: 5.4pt">Outstanding shares at March 31, 2012</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">675,250</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">3,978,406</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">1,334,844</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"><b><i>Share-Based
Compensation – Options </i></b></font></p>
<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: justify; text-indent: 0.25in"><font style="font-size: 10pt">For
stock options issued and outstanding during the six months ended June 30, 2012 and 2011, the Company recorded additional paid-in
capital and non-cash compensation expense of approximately $407,000 and $287,000, respectively, each net of estimated forfeitures.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model with certain
assumptions noted below. 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 financial statements, to estimate option exercise and employee termination and forfeitures within the valuation
model. The expected term of stock options granted under the Company’s stock plans is based on the average of the contractual
term (generally 10 years) and the vesting period (generally 24 to 42 months). The risk-free rate is based on the yield of a U.S.
Treasury security with a term consistent with the option.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
assumptions used principally for stock options granted to employees and members of the Company’s Board of Directors in the
six months ended June 30, 2012 and 2011 were as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: left"> </td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Risk-free interest rate</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"><font style="font-size: 10pt">0.94% — 2.05%</font></td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"><font style="font-size: 10pt">2.43% — 3.47%</font></td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Expected dividend yield</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Expected term</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"><font style="font-size: 10pt">6.5 years</font></td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"><font style="font-size: 10pt">6.0 — 6.5 years</font></td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 56%; text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Forfeiture rate (excluding fully vested stock options)</td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">15</td><td style="width: 1%; text-align: left">%</td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right"><font style="font-size: 10pt">0% — 15%</font></td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Expected volatility</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"><font style="font-size: 10pt">131% — 137%</font></td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"><font style="font-size: 10pt">140% — 142%</font></td><td style="text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">A
summary of stock option activity as of and for the six months ended June 30, 2012 is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 9pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: bold 8pt/93% Times New Roman, Times, Serif; margin: 0"><font style="font-size: 10pt"><u>Stock Options</u></font></p></td><td style="font-size: 9pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 9pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></p></td><td style="font-size: 9pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 9pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Weighted-</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Average</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Exercise</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Price</b></font></p></td><td style="font-size: 9pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td style="font-size: 9pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Weighted-</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Average</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Remaining</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Contractual</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Term</b></font></p></td><td style="font-size: 9pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 9pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Aggregate</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Intrinsic</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Value</b></font></p></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="width: 18%; text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Outstanding at January 1, 2012</td><td style="width: 3%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 16%; text-align: right">3,395,103</td><td style="width: 1%; text-align: left"> </td><td style="width: 3%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 16%; text-align: right">1.68</td><td style="width: 1%; text-align: left"> </td><td style="width: 3%"> </td>
<td style="width: 17%; text-align: right; padding-left: 2.35pt"> </td><td style="width: 3%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 15%; text-align: right"> </td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">430,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.84</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right; padding-left: 2.35pt"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Exercised</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(233,666</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">0.96</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right; padding-left: 2.35pt"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 5.05pt">Forfeited or expired</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(257,437</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">4.58</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="text-align: right; padding-bottom: 1pt; padding-left: 2.35pt"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right"> </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Outstanding at June 30, 2012</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">3,334,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1.53</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="text-align: right; padding-bottom: 2.5pt; padding-left: 2.35pt">7.3 years</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,866,200</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Exercisable at June 30, 2012</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">2,112,830</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">0.91</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="text-align: right; padding-bottom: 2.5pt; padding-left: 2.35pt">6.1 years</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,861,033</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
weighted-average grant-date fair value of stock options granted during the six months ended June 30, 2012 was $1.84 per share.
Share-based compensation expense recognized in the six months ended June 30, 2012 and 2011 was approximately $407,000 and $287,000,
respectively. As of June 30, 2012, there was approximately $2,537,000 of total unrecognized compensation expense related to non-vested
share-based option compensation 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 substantially all of the stock or assets of the Company (see Restricted
Stock section below), unrecognized compensation is expected to be recognized over the next four years.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.2in"><font style="font-size: 10pt"><b><i> </i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b><i>Share-Based
Compensation – Restricted Stock</i></b></font></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: 0.25in"><font style="font-size: 10pt">During
the six months ended June 30, 2012, the Company granted an aggregate of 703,656 restricted shares of Common Stock to certain officers,
employees, directors and consultants of the Company. The grants were issued pursuant to the 2008 Plan. The grant date fair value
of these restricted stock grants was approximately $1,369,000.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 12pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 12pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">A
summary of the Company’s nonvested restricted stock activity as of and for the six months ended June 30, 2012, is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt; background-color: yellow"></font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="text-align: left; border-bottom: Black 1pt solid"><p style="font: 10pt/93% Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p><p style="font: 10pt/93% Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p><p style="font: 10pt/93% Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"><b>Restricted Stock	</b></font></p></td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></p></td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><p style="font: 8pt/94% Times New Roman, Times, Serif; margin: 1pt 0 0; text-align: center"><font style="font-size: 10pt"><b>Weighted-</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Average</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Grant-Date</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Fair Value</b></font></p></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="width: 56%; text-align: left; padding-left: 2.35pt">Nonvested at January 1, 2012</td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">1,819,594</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1.72</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 2.35pt">Granted this period</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">703,656</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.95</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-left: 2.35pt">Grants made in prior periods, now becoming restricted</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">220,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">0.92</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 2.35pt">Vested</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(110,000</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.24</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 2.35pt">Forfeited</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 2.35pt">Nonvested at June 30, 2012</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">2,633,250</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1.78</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.2in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">Among
the 2,633,250 shares of non-vested restricted stock, the various vesting criteria include the following:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; line-height: 115%; margin-top: 0; margin-bottom: 10pt"><tr style="vertical-align: top">
<td style="width: 31.5pt"></td><td style="width: 13.5pt"><font style="font: 10pt Symbol">·</font></td><td><font style="font-size: 10pt; color: black">1,679,594
shares of restricted
stock vest upon the
FDA approval of Symphony
or the sale of the Company;</font></td></tr></table>
<table cellpadding="0" cellspacing="0" style="width: 100%; line-height: 115%; margin-top: 0; margin-bottom: 10pt"><tr style="vertical-align: top">
<td style="width: 31.5pt"></td><td style="width: 13.5pt"><font style="font: 10pt Symbol">·</font></td><td><font style="font-size: 10pt; color: black">220,000
shares of restricted
stock vest upon the
sale of the Company;
and</font></td></tr></table>
<table cellpadding="0" cellspacing="0" style="width: 100%; line-height: 115%; margin-top: 0; margin-bottom: 10pt"><tr style="vertical-align: top">
<td style="width: 31.5pt"></td><td style="width: 13.5pt"><font style="font: 10pt Symbol">·</font></td><td><font style="font-size: 10pt; color: black">733,656
shares of restricted
stock vest over one
to four years, at each
of the anniversary dates
of the grants.</font></td></tr></table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">As
of June 30, 2012, there was approximately $1,368,000 of total unrecognized compensation expense related to non-vested
share-based restricted stock arrangements granted pursuant to the Company’s equity compensation plans that vest over
time in the forseeable future. As of June 30, 2012, the Company cannot estimate the timing of completion of performance
vesting requirements required by certain of these restricted stock grant arrangements. Compensation expense related to
these restricted share grants will be recognized when the Company concludes that achievement of the performance vesting
conditions is probable.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">At
June 30, 2012, the Company had the following outstanding warrants:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: left"> </td><td style="font-size: 9pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 9pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Number of</b></font></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Shares</b></font></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font-size: 10pt"><b>Exercisable</b></font></p></td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Exercise Price</td><td style="font-weight: bold; padding-bottom: 1pt"> </td>
<td style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Date of Expiration</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="font-weight: bold; text-align: left">Outstanding warrants accounted for as derivative warrant liability:</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 56%; text-align: left">Granted to investors and placement agent in private placement</td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">112,148</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1.28</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td>
<td style="text-align: right">7/16/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to financial investment advisor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">3,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.38</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">7/25/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to financial advisor in connection with an acquisition</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">61,625</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.75</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">9/14/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to financial investment advisor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">7,500</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.30</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/11/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">154,990</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">0.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/11/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 1pt">Granted to investors in private placement</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">177,324</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1.50</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: right">3/24/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: 17.1pt">Total outstanding warrants accounted for as derivative warrant liability</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">516,587</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt">Weighted average exercise price</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1.18</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt">Weighted average time to expiration in years</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: center">0.48 years</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="font-weight: bold; text-align: left">Outstanding warrants accounted for as equity:</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to investors in private placement of preferred stock</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">32,249</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left">$</td><td style="text-align: right">1.00</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">9/30/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to investors in private placement of preferred stock</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">198,333</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">10/28/2013</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> </td>
<td style="text-align: left"> </td><td style="text-align: right">390,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">0.75</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/28/2014</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to vendor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">60,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">0.60</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">3/15/2014</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">400,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.59</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">6/30/2014</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">768,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.00</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/13/2014</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">256,906</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/13/2014</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to vendor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">50,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.00</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/1/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">63,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.00</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/3/2014</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">341,325</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.25</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/9/2015</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to placement agents in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">28,500</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.25</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/9/2015</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to investor in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">6,375</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.25</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">3/18/2015</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to financial investment advisor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">100,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/10/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to financial investment advisor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">10,367</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.00</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">3/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">187,500</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">187,500</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">5,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">5,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">35,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/26/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">35,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/26/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">495,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">512,500</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">30,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">30,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">245,750</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">245,750</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">18,125</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">18,125</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">255,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">280,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,250</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,250</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">250,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/8/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">250,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/8/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt">Granted to investors in private placement</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">959,582</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">3.00</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: right">12/7/2014</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: 12.05pt; padding-left: 5.05pt">Total outstanding warrants accounted for as equity</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">6,752,387</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Weighted average exercise price</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">2.00</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Weighted average time to expiration in years</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: center">0.92 years</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-size: 9pt; font-weight: bold; text-align: left; padding-left: 5.4pt"><p style="font: 9pt/93% Times New Roman, Times, Serif; margin: 3pt 0 0 5.05pt; text-align: left; text-indent: -5.95pt"><font style="font-size: 10pt"><b> </b></font></p><p style="font: 9pt/93% Times New Roman, Times, Serif; margin: 3pt 0 0 5.05pt; text-align: left; text-indent: -5.95pt"><font style="font-size: 10pt"><b>Totals for all warrants outstanding:</b></font></p></td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: 12.05pt; padding-left: 5.05pt">Total</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">7,268,974</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Weighted average exercise price</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1.95</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Weighted average time to expiration in years</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: center">0.89 years</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b><i> </i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">A
summary of warrant activity for the six months ended June 30, 2012 is as follows:</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"> </font></p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 9pt; text-decoration: underline; text-align: justify; padding-bottom: 1pt; padding-left: 2.35pt"><p style="font: 10pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify">Warrants</p></td><td style="font-size: 9pt; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 9pt; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-size: 9pt; text-align: right"><p style="font: 10pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"> </font></p><p style="font: 10pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"> </font></p><p style="font: 10pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"> </font></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b><u>	Shares	</u></b></font></p></td><td style="padding-bottom: 1pt; font-size: 9pt; text-align: left"> </td><td style="font-size: 9pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; font-size: 9pt; font-weight: bold; text-align: left"> </td><td style="border-bottom: Black 1pt solid; font-size: 9pt; font-weight: bold; text-align: right"><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b>	Weighted-</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b>	Average</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b>	Exercise</b></font></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b><u>	Price	</u></b></font></p></td><td style="padding-bottom: 1pt; font-size: 9pt; font-weight: bold; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="width: 56%; text-align: justify; padding-left: 2.35pt">Outstanding at January 1, 2012</td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">7,527,529</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1.92</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-left: 2.35pt">Granted</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-left: 2.35pt">Exercised</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(118,500</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.28</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: right; padding-bottom: 1pt; padding-left: 2.35pt">Forfeited or expired</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(140,055</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1.07</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-bottom: 2.5pt; padding-left: 2.35pt">Outstanding at June 30, 2012</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">7,268,974</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1.95</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b><i> </i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b><i>Exercise
of Common Stock Warrants</i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font-size: 10pt"><b><i> </i></b></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">During
the six months ended June 30, 2012, the Company issued 118,500 shares of Common Stock upon the exercise of warrants.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">In
2009, the Company entered into a License Agreement with Handok Pharmaceuticals Co., Ltd. (“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.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">The
Company received a licensing fee of approximately $500,000 upon execution of the Handok License as well as future milestone payments
and royalties. The Company recognizes the upfront, nonrefundable payments as revenue on a straight-line basis over the contractual
or estimated performance period. During the six months ended June 30, 2012 and 2011, the Company recorded approximately $62,000
and $243,000, respectively, of nonrefundable license revenue. As of June 30, 2012, approximately $124,000 of deferred revenue
remains unrecognized, which is recognizable over the next 12 months and shown as Deferred Revenue amongst current liabilities
on the Consolidated Balance Sheet.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">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.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.2in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">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 enable the Company’s senior management team to focus its full attention on product development
and business operations. In accordance with the 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 vested in January 2012, the date when the Company received confirmation of Mr. Mitchell’s
dismissal of his lawsuit, and resulted in an outstanding settlement accrued liability relating to the settlement of $290,000,
representing the then fair value of the Common Stock to be issued, in the Company’s consolidated balance sheet as of December
31, 2011. As of June 30, 2012, this matter has been completely resolved.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"><font style="font-size: 10pt">When
the Shares were issued in January 2012, the accrued liability was largely satisfied and $82,000 of the previously recorded share-based
compensation was reversed in that period due to a decline in the market value of the underlying Common Stock.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><b><i>Financing Arrangement with Platinum-Montaur Life Sciences
LLC</i></b></p>
<p style="font: 14pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 39pt"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 39pt">On August 8, 2012,
the Company and Platinum-Montaur Life Sciences LLC, a Delaware limited liability company (“Montaur”) signed a commitment
letter (the “Commitment Letter”) pursuant to which Montaur agreed to make a non-revolving draw credit facility available
to the Company in an initial aggregate principal amount of $5,000,000 (the “Draw Credit Maximum Amount”). The term
of the credit facility will be five years from the date of closing (the “Maturity Date”). Pursuant to the terms of
the Commitment Letter, the Company may make an aggregate principal amount of draws which do not exceed the Draw Credit Maximum
Amount. The Company may not re-borrow the amount of any repaid draw. The Draw Credit Maximum Amount available pursuant to the Loan
Agreement will increase in additional $3,000,000 increments, in an amount not to exceed $20,000,000, upon the occurrence of certain
regulatory and clinical study milestones. The principal balance of each draw will bear interest from the applicable draw date at
a rate equal to 10.0% per annum. Interest payable by the Company will compound monthly.  The Company will make interest-only
payments on the principal amount due in connection with each draw on the first business day of each month until the Maturity Date.
The Company will have the right to permanently prepay any draw, in whole or in part.</p>
<p style="font: 14pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 39pt">On closing, the
Company will issue Montaur a warrant to purchase 4,000,000 shares of Common Stock, with an exercise price of $2.00 per share and
a term of five years.  In addition, for each $1,000,000 draw, the Company will issue Montaur a warrant to purchase 1,000,000
shares of Common Stock, with a term of five years and an exercise price equal to the lesser of: (a) 150% of the market price of
the Common Stock at the time of the draw (but in no event less than $2.00 per share), or (b) $4.00 per share.</p>
0.01
0.01
10000
10000
9974.185
9974.185
9974.185
9974.185
0.01
0.01
3600000
3600000
3006000
3006000
3006000
3006000
0.01
0.01
150000000
150000000
1600000
10000000
39615344
38543944
38543944
3006000
3006000
39838586
<p style="margin: 0pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">Echo Therapeutics, Inc.
(the “Company”) is atransdermal medical device company with significant expertise in advanced skin permeation technology
that is primarily focused on continuous glucose monitoring and needle-free drug delivery. The Company is developing its Prelude®
SkinPrep System (“Prelude”) as a platform technology to allow for significantly enhanced and painless skin permeation
that will enable two important applications:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in"><font style="font-family: Symbol">·</font></td><td style="text-align: justify">analyte extraction, with the Symphony® tCGM System(“Symphony”) for needle-free,
continuous glucose monitoring for use in hospital critical care units and for people with diabetes; and</td></tr></table>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in"><font style="font-family: Symbol">·</font></td><td style="text-align: justify">enhanced needle-free drug delivery.</td></tr></table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.25in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">The accompanying consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical, Inc., a Delaware corporation.
All significant intercompany balances and transactions have been eliminated in consolidation.</p>
<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: justify; text-indent: 0.25in">The accompanying unaudited
consolidated financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”)
in the United States consistent with those applied in, and should be read in conjunction with, the Company’s audited consolidated
financial statements and related footnotes for the year ended December 31, 2011 included in the Company’s Annual Report on
Form 10-K as filed with the United States Securities and Exchange Commission (“SEC”) on March 15, 2012. These unaudited
consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion
of management, necessary for a fair presentation of the Company’s financial position as of June 30, 2012 and its results
of operations and cash flows for the interim periods presented and are not necessarily indicative of results for subsequent interim
periods or for the full year. The interim financial statements do not include all of the information and footnotes required by
GAAP for complete financial statements and allowed by the relevant SEC rules and regulations; however, the Company believes that
its disclosures are adequate to ensure that the information presented is not misleading.Certain amounts in prior periods have been
reclassified to conform to current presentation.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.2in"> The accompanying
consolidated financial statements have been prepared on a basis assuming that the Company is a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2012, the Company
had cash of approximately $3,111,000, working capital of approximately $1,795,000 and an accumulated deficit of approximately
$87,710,000. We will require additional capital to fund our product development, research, manufacturing and clinical programs
in accordance with our current projected level of operations. The Company has funded its operations in the past primarily through
debt and equity issuances. Management intends to pursue additional financing to fund its operations. Although management believes
that it will be successful in securing additional financing, no assurances can be given as to the success of these plans or that
such capital will be available to the Company in sufficient amounts to meet its operating cash needs or on terms acceptable to
the Company. The consolidated financial statements do not include any adjustments that might result from the outcome of these
uncertainties.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">The Company’s intangible assets are related to the
acquisition of assets from Durham Pharmaceuticals Ltd. in 2007 and are summarized as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 18pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 8pt; font-weight: bold; text-align: left"> </td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center"> </td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center"> </td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="7" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30, 2012</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2011</td></tr>
<tr style="vertical-align: bottom">
<td style="font-size: 8pt; font-weight: bold; text-align: left"> </td><td style="font-size: 8pt; font-weight: bold"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: left">Estimated</td><td style="font-size: 8pt; font-weight: bold"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: left"> </td><td style="font-size: 8pt; font-weight: bold"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: left">Accumulated</td><td style="font-size: 8pt; font-weight: bold"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center"> </td><td style="font-size: 8pt; font-weight: bold"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center"> </td></tr>
<tr style="vertical-align: bottom">
<td style="font-size: 8pt; font-weight: bold; text-align: left"> </td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: left; border-bottom: Black 1pt solid">Life</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: left; border-bottom: Black 1pt solid">Cost</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: left; border-bottom: Black 1pt solid">Amortization</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Net</td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: left">Contract related intangible asset:</td><td> </td>
<td colspan="3" style="text-align: left"> </td><td> </td>
<td colspan="3" style="text-align: left"> </td><td> </td>
<td colspan="3" style="text-align: left"> </td><td> </td>
<td colspan="3" style="text-align: left"> </td><td> </td>
<td colspan="3" style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="width: 35%; text-align: left; padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 14.8pt">Cato Research discounted contract</td><td style="width: 2%; padding-bottom: 1pt"> </td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left"> </td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right">3 years</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right">355,000</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right">355,000</td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right">—  </td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td><td style="width: 2%; padding-bottom: 1pt"> </td>
<td style="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</td><td style="width: 9%; border-bottom: Black 1pt solid; text-align: right">—  </td><td style="width: 1%; padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Technology related intangible assets:</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 14.8pt">Patents for the AzoneTS-based product candidates and formulation</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">6 years</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,305,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,305,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,305,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 14.8pt">Drug Master Files containing formulation, clinical and safety documentation used by the FDA</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">6 years</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,500,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,500,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,500,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 14.05pt">In-process pharmaceuticalproducts for 2 indications</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">6 years</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">6,820,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">6,820,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">6,820,000</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; text-indent: -5.05pt; padding-left: 14.05pt">Total technology related intangible assets</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right"> </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">9,625,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">9,625,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">9,625,000</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Intangible assets, net</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">9,980,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">355,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">9,625,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">9,625,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0">Future minimum lease payments for each of the next 5 years
under these operating leases are as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td colspan="3" style="text-align: justify"> </td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Franklin</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Philadelphia</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total</td></tr>
<tr style="vertical-align: bottom">
<td colspan="3" style="text-align: justify">For the period ending December 31,</td><td> </td>
<td colspan="3" style="text-align: center"> </td><td> </td>
<td colspan="3" style="text-align: center"> </td><td> </td>
<td colspan="3" style="text-align: center"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="width: 1%; text-align: left"> </td><td style="width: 20%; text-align: right">2012</td><td style="width: 1%; text-align: left"> </td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 19%; text-align: right">209,000</td><td style="width: 1%; text-align: left"> </td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 19%; text-align: right">90,000</td><td style="width: 1%; text-align: left"> </td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 19%; text-align: right">299,000</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"> </td><td style="text-align: right">2013</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">424,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">183,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">607,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left"> </td><td style="text-align: right">2014</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">434,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">187,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">621,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left"> </td><td style="text-align: right">2015</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">444,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">192,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">636,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">2016</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">454,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">196,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">650,000</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">Total</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1,965,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">848,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">2,813,000</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The table below presents the changes in the
derivative warrant liability for the six months ended June 30, 2012 and 2011:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 18pt"> </p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="text-align: left"> </td><td style="font-size: 9pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 9pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</td><td style="font-size: 9pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 9pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="width: 56%; text-align: left; text-indent: 4.5pt; padding-left: 6.65pt"><font style="font: 10pt Times New Roman, Times, Serif">Derivative
warrant liability as of January 1</font></td><td style="width: 8%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td><td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,035,337</font></td><td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="width: 8%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td><td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,544,996</font></td><td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: 22.5pt; padding-left: 6.65pt"><font style="font: 10pt Times New Roman, Times, Serif">Total
unrealized losses included in net loss <sup>(1)</sup>	</font></td><td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—  </font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="font-family: Courier New, Courier, Monospace"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="font-family: Courier New, Courier, Monospace; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="font-family: Courier New, Courier, Monospace; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,191,147</font></td><td style="font-family: Courier New, Courier, Monospace; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="text-align: left; text-indent: 22.5pt; padding-left: 6.65pt"><font style="font: 10pt Times New Roman, Times, Serif">Total
realized losses included in net loss <sup>(1)</sup>	</font></td><td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—  </font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="font-family: Courier New, Courier, Monospace"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="font-family: Courier New, Courier, Monospace; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="font-family: Courier New, Courier, Monospace; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">978,678</font></td><td style="font-family: Courier New, Courier, Monospace; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: 22.5pt; padding-left: 6.65pt"><font style="font: 10pt Times New Roman, Times, Serif">Total
unrealized gains included in net loss <sup>(1)</sup>	</font></td><td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(539,648</font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td><td style="font-family: Courier New, Courier, Monospace"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="font-family: Courier New, Courier, Monospace; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="font-family: Courier New, Courier, Monospace; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(17,917</font></td><td style="font-family: Courier New, Courier, Monospace; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="text-align: left; text-indent: 22.5pt; padding-left: 6.65pt"><font style="font: 10pt Times New Roman, Times, Serif">Total
realized gains included in net loss <sup>(1)</sup>	</font></td><td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(61,6333</font></td><td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td><td style="font-family: Courier New, Courier, Monospace"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="font-family: Courier New, Courier, Monospace; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="font-family: Courier New, Courier, Monospace; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—  </font></td><td style="font-family: Courier New, Courier, Monospace; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 33pt"><font style="font: 10pt Times New Roman, Times, Serif">Reclassification
of derivative warrant liability to additional paid-in capital for derivative warrants exercised	</font></td><td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(41,520</font></td><td style="padding-bottom: 1pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td><td style="font-family: Courier New, Courier, Monospace; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 1pt solid; font-family: Courier New, Courier, Monospace; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="border-bottom: Black 1pt solid; font-family: Courier New, Courier, Monospace; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(2,170,726</font></td><td style="padding-bottom: 1pt; font-family: Courier New, Courier, Monospace; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: 4.5pt; padding-left: 6.65pt"><font style="font: 10pt Times New Roman, Times, Serif">Derivative
warrant liability as of June 30</font></td><td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">392,536</font></td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td><td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="border-bottom: Black 2.5pt double; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td><td style="border-bottom: Black 2.5pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,526,17</font>8</td><td style="padding-bottom: 2.5pt; text-align: left"><font style="font-family: Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The assumptions used principally for stock
options granted to employees and members of the Company’s Board of Directors in the six months ended June 30, 2012 and 2011
were as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 66%; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left; font-size: 8pt; font-weight: bold"> </td>
<td style="width: 18%; border-bottom: windowtext 1pt solid; padding-top: 1pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: center; font-size: 8pt; font-weight: bold">2012</td>
<td style="width: 1%; padding-top: 1pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: center; font-size: 8pt; font-weight: bold"> </td>
<td style="width: 15%; border-bottom: windowtext 1pt solid; padding-top: 1pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: center; font-size: 8pt; font-weight: bold">2011</td></tr>
<tr>
<td style="vertical-align: bottom; padding-top: 1pt; padding-right: 5.05pt; padding-left: 5.05pt; text-align: left; text-indent: -5.05pt">Risk-free interest rate</td>
<td style="vertical-align: bottom; padding-top: 1pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right">0.94% — 2.05%</td>
<td style="vertical-align: top; padding-top: 1pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-top: 1pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right">2.43% — 3.47%</td></tr>
<tr>
<td style="vertical-align: bottom; padding-right: 5.05pt; padding-left: 5.05pt; text-align: left; text-indent: -5.05pt">Expected dividend yield</td>
<td style="vertical-align: bottom; padding-right: 10.8pt; padding-left: 2.35pt; text-align: right">—</td>
<td style="vertical-align: top; padding-right: 10.8pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 10.8pt; padding-left: 2.35pt; text-align: right">—</td></tr>
<tr>
<td style="vertical-align: bottom; padding-right: 5.05pt; padding-left: 5.05pt; text-align: left; text-indent: -5.05pt">Expected term</td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right">6.5 years</td>
<td style="vertical-align: top; padding-right: 10.8pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right">6.0— 6.5 years</td></tr>
<tr>
<td style="vertical-align: bottom; padding-right: 5.05pt; padding-left: 5.05pt; text-align: left; text-indent: -5.05pt">Forfeiture rate (excluding fully vested stock options)</td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right">15%</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right">0% — 15%</td></tr>
<tr>
<td style="vertical-align: bottom; padding-right: 5.05pt; padding-left: 5.05pt; text-align: left; text-indent: -5.05pt">Expected volatility</td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right">131% — 137%</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right">140% — 142%</td></tr>
</table>
<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: justify; text-indent: 18pt">A summary of stock option
activity as of and for thesix months endedJune 30, 2012 is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left"> </p>
<table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: top">
<td style="width: 54%; padding-right: 2.35pt; padding-left: 2.35pt">
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: bold 8pt/93% Times New Roman, Times, Serif; margin: 0"><u>Stock Options</u></p></td>
<td style="width: 12%; border-bottom: windowtext 1pt solid; padding-right: 2.35pt; padding-left: 2.35pt">
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Shares</b></p></td>
<td style="width: 1%; padding-right: 2.35pt; padding-left: 2.35pt; text-align: center; font-size: 8pt; font-weight: bold"> </td>
<td style="width: 9%; border-bottom: windowtext 1pt solid; padding-right: 2.35pt; padding-left: 2.35pt">
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted-</b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Average</b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Exercise</b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Price</b></p></td>
<td style="width: 1%; padding-right: 2.35pt; padding-left: 2.35pt; text-align: center; font-size: 8pt; font-weight: bold"> </td>
<td style="width: 11%; border-bottom: windowtext 1pt solid; padding-right: 2.35pt; padding-left: 2.35pt">
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Weighted-</b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Average</b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Remaining</b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Contractual</b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Term</b></p></td>
<td style="width: 1%; padding-right: 2.35pt; padding-left: 2.35pt; text-align: center; font-size: 8pt; font-weight: bold"> </td>
<td style="width: 11%; border-bottom: windowtext 1pt solid; padding-right: 2.35pt; padding-left: 2.35pt">
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b> </b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Aggregate</b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Intrinsic</b></p>
<p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Value</b></p></td></tr>
<tr>
<td style="vertical-align: bottom; padding-top: 3pt; padding-left: 5.05pt; text-align: left; text-indent: -5.05pt">Outstanding at January 1, 2012</td>
<td style="vertical-align: bottom; padding-top: 3pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">     3,395,103</td>
<td style="vertical-align: top; padding-top: 3pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-top: 3pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">$        1.68</td>
<td style="vertical-align: top; padding-top: 3pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-top: 3pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: top; padding-top: 3pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-top: 3pt; padding-right: 2.35pt; padding-left: 2.35pt; text-align: justify"> </td></tr>
<tr>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 5.05pt; text-align: left; text-indent: -5.05pt">Granted</td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">        430,000</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">          1.84</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: justify"> </td></tr>
<tr>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 5.05pt; text-align: left; text-indent: -5.05pt">Exercised</td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">       (233,666)</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">          0.96</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: justify"> </td></tr>
<tr>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 5.05pt; text-align: left; text-indent: -5.05pt">Forfeited or expired</td>
<td style="border-bottom: windowtext 1pt solid; vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">       (257,437)</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">          4.58</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: justify"> </td></tr>
<tr>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 5.05pt; text-align: left; text-indent: -5.05pt">Outstanding at June 30, 2012</td>
<td style="border-bottom: windowtext 1.5pt double; vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">     3,334,000</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="border-bottom: windowtext 1.5pt double; vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">$        1.53</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="border-bottom: windowtext 1.5pt double; vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right">7.3 years</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="border-bottom: windowtext 1.5pt double; vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: justify">$ 1,866,200</td></tr>
<tr>
<td style="vertical-align: bottom; padding-right: 2.35pt; padding-left: 5.05pt; text-align: left; text-indent: -5.05pt">Exercisable at June 30,2012</td>
<td style="border-bottom: windowtext 1.5pt double; vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">     2,112,830</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="border-bottom: windowtext 1.5pt double; vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: left">$        0.91</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="border-bottom: windowtext 1.5pt double; vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right">6.1 years</td>
<td style="vertical-align: top; padding-right: 2.35pt; padding-left: 2.35pt; text-align: right"> </td>
<td style="border-bottom: windowtext 1.5pt double; vertical-align: bottom; padding-right: 2.35pt; padding-left: 2.35pt; text-align: justify">$ 1,861,033</td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 18pt">A summary of the Company’s
nonvested restricted stock activity as of and for the six months ended June 30, 2012, is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 18pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 18pt"></p>
<table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 8pt; font-weight: bold; text-align: left; border-bottom: Black 1pt solid">Restricted Stock</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted- <br />Average <br />Grant-Date <br />Fair Value</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="width: 56%; text-align: left; padding-left: 2.35pt">Nonvested at January 1, 2012</td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">1,819,594</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1.72</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 2.35pt">Granted this period</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">703,656</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.95</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="text-align: left; padding-left: 2.35pt">Grants made in prior periods, now becoming restricted</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">220,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">0.92</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-left: 2.35pt">Vested</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(110,000</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.24</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
<td style="text-align: left; padding-bottom: 1pt; padding-left: 2.35pt">Forfeited</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; padding-left: 2.35pt">Nonvested at June 30, 2012</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">2,633,250</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1.78</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt; text-align: justify; text-indent: 18pt">At June 30, 2012,
the Company had the following outstanding warrants:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 3pt; text-align: justify; text-indent: 18pt"> </p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 9pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: left"> </td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number of <br />Shares <br />Exercisable</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Exercise Price</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Date of Expiration</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="font-weight: bold; text-align: left">Outstanding warrants accounted for as derivative warrant liability:</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 56%; text-align: left">Granted to investors and placement agent in private placement</td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">112,148</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1.28</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td>
<td style="text-align: right">7/16/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to financial investment advisor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">3,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.38</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">7/25/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to financial advisor in connection with an acquisition</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">61,625</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.75</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">9/14/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to financial investment advisor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">7,500</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.30</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/11/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">154,990</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">0.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/11/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 1pt">Granted to investors in private placement</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">177,324</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1.50</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: right">3/24/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: 17.1pt">Total outstanding warrants accounted for as derivative warrant liability</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">516,587</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt">Weighted average exercise price</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1.18</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt">Weighted average time to expiration in years</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: center">0.48years</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="font-weight: bold; text-align: left">Outstanding warrants accounted for as equity:</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </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> </td>
<td style="text-align: left"> </td><td style="text-align: right">32,249</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left">$</td><td style="text-align: right">1.00</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">9/30/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to investors in private placement of preferred stock</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">198,333</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">10/28/2013</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> </td>
<td style="text-align: left"> </td><td style="text-align: right">390,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">0.75</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/28/2014</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to vendor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">60,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">0.60</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">3/15/2014</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">400,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.59</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">6/30/2014</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">768,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.00</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/13/2014</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">256,906</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/13/2014</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to vendor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">50,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.00</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/1/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">63,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.00</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/3/2014</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">341,325</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.25</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/9/2015</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to placement agents in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">28,500</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.25</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/9/2015</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left">Granted to investor in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">6,375</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.25</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">3/18/2015</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left">Granted to financial investment advisor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">100,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/10/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to financial investment advisor</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">10,367</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.00</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">3/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">187,500</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">187,500</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">5,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">5,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/5/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">35,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/26/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">35,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">11/26/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">495,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">512,500</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">30,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">30,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">12/29/2012</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">245,750</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">245,750</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">18,125</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">18,125</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">1/4/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">255,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">280,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,250</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to placement agent in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1,250</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/3/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">250,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/8/2013</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; text-indent: -5.05pt; padding-left: 5.05pt">Granted to investors in private placement</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">250,000</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">2.50</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: right">2/8/2013</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 1pt">Granted to investors in private placement</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">959,582</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">3.00</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: right">12/7/2014</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: 12.05pt; padding-left: 5.05pt">Total outstanding warrants accounted for as equity</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">6,752,387</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Weighted average exercise price</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">2.00</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Weighted average time to expiration in years</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: center">0.92 years</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="font-weight: bold; text-align: left; padding-left: 5.4pt"> <br />Totals for all warrants outstanding:</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right"> </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: 12.05pt; padding-left: 5.05pt">Total</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">7,268,974</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Weighted average exercise price</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1.95</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.05pt; padding-left: 5.05pt">Weighted average time to expiration in years</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right"> </td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: center">0.89 years</td></tr>
</table>
<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></i></b>A summary of warrant activity
for the six months ended June 30, 2012 is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> </p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 10pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 8pt; font-weight: bold; text-align: justify; border-bottom: Black 1pt solid"><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>Warrants</u>	</b></p></td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: justify; border-bottom: Black 1pt solid"><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b> </b></p><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>	Shares	</u></b></p></td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: justify; border-bottom: Black 1pt solid"><p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>	Weighted-</b></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>	Average</b></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>	Exercise</b></p> <p style="font: 8pt/93% Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><u>	Price	</u></b></p></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="width: 56%; text-align: justify; padding-left: 2.35pt">Outstanding at January 1, 2012</td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">7,527,529</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left">$</td><td style="width: 12%; text-align: right">1.92</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-left: 2.35pt">Granted</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-left: 2.35pt">Exercised</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(118,500</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">1.28</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: right; padding-bottom: 1pt; padding-left: 2.35pt">Forfeited or expired</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(140,055</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1.07</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-bottom: 2.5pt; padding-left: 2.35pt">Outstanding at June 30, 2012</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">7,268,974</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left">$</td><td style="border-bottom: Black 2.5pt double; text-align: right">1.95</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
3111000
1795000
87710000
3100000
250000
P3Y
P6Y
P6Y
P6Y
9980000
355000
1305000
1500000
6820000
9625000
9980000
355000
355000
355000
9625000
9625000
1305000
1500000
6820000
9625000
9625000
299000
209000
90000
607000
424000
183000
621000
434000
187000
636000
444000
192000
650000
454000
196000
2813000
1965000
848000
37050
7861
392536
1035337
1544996
2526178
2191147
978678
-539648
-17917
-61633
-41520
-2170726
7268974
7527529
516587
393000
602000
370000
3152000
122000
0.96
602693
42000
2171000
40000000
10000
10000
3600000
3600000
9974.185
9974.185
3006000
3006000
1369000
1600000
10000000
-161250
-2208406
-1544491
-2275000
-4257437
678491
375000
572750
5891594
1544491
2275000
3100000
-678491
-375000
-1383334
-233666
-352000
-130000
-666666
514000
1770000
1050000
161250
2208406
284844
0.0094
0.0243
0.0205
0.0347
0
0.15
0.15
1.31
1.40
1.37
1.42
3334000
3395103
430000
2112830
1.53
1.68
0.91
1866200
1861033
2633250
1819594
703656
220000
-110000
1.78
1.72
1.95
2.24
161250
3978406
560000
5891594
407000
287000
1.84
407000
287000
2537000
703656
2643250
1378000
112148
3000
61625
7500
154990
177324
1.28
1.38
1.75
1.3
0.5
1.5
2012-06-15
2012-07-16
2012-07-25
2012-09-14
2013-11-02
2013-11-02
2013-03-24
516587
1.18
P5M23D
28500
100000
10367
400000
768000
32249
198333
390000
60000
256906
50000
63000
341325
6375
187500
187500
5000
5000
35000
35000
495000
512500
30000
30000
245750
245750
18125
18125
255000
280000
1250
1250
250000
250000
959582
6752387
2.25
1.5
2
1.59
2
1
1.5
0.75
0.6
1.5
2
2
2.25
2.25
1.5
2.5
1.5
2.5
1.5
2.5
1.5
2.5
1.5
2.5
1.5
2.5
1.5
2.5
1.5
2.5
1.5
2.5
1.5
2.5
3
2
7268974
1.95
P10M20D
7527529
-118500
-140055
7268974
1.95
1.92
1.28
1.07
500000
62000
43000
124000
118500
400000
290000
125000
100000
13000
5400
2014-03-31
2014-04-30
2017-10-31
2017-05-31
28666
100000
50299
339000
P6Y
P6Y6M
P6Y6M
1.84
4.58
P6Y1M6D
P7Y3M18D
0.92
5000000
P5Y
3000000
20000000
0.10
2.0
In addition, for each $1,000,000 draw, the Company will issue Montaur a warrant to purchase 1,000,000 shares of Common Stock, with a term of five years and an exercise price equal to the lesser of: (a) 150% of the market price of the Common Stock at the time of the draw (but in no event less than $2.00 per share), or (b) $4.00 per share.
74000
86000
53000
38836022
514000
P11M1D
1334844
4000000
2015-02-09
2013-02-10
2013-03-03
2014-06-30
2014-11-13
2013-09-30
2013-10-28
2014-02-28
2014-03-15
2014-11-13
2012-12-01
2014-12-03
2015-02-09
2015-03-18
2012-11-05
2012-11-05
2012-11-05
2012-11-05
2012-11-26
2012-11-26
2012-12-29
2012-12-29
2012-12-29
2012-12-29
2013-01-04
2013-01-04
2013-01-04
2013-01-04
2013-02-03
2013-02-03
2013-02-03
2013-02-03
2013-02-08
2013-02-08
2014-12-07
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 9pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td style="font-size: 10pt; font-weight: bold; text-align: justify"> </td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="7" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Stock Option Plans</td></tr>
<tr style="vertical-align: bottom">
<td style="font-size: 10pt; font-weight: bold; text-align: justify"> </td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2003 Plan</td><td style="font-size: 8pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 8pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2008 Plan</td></tr>
<tr style="vertical-align: bottom">
<td style="font-weight: bold; text-align: justify; border-bottom: Black 1pt solid">Shares Available For Issuance</td><td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="text-align: justify"> </td><td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="text-align: justify"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="width: 56%; text-align: justify; text-indent: -7.9pt; padding-left: 7.9pt">Total reserved for stock options and restricted stock</td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">1,600,000</td><td style="width: 1%; text-align: left"> </td><td style="width: 8%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 12%; text-align: right">10,000,000</td><td style="width: 1%; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-left: 5.4pt">Net restricted stock issued net of cancellations</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(161,250</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(2,208,406</td><td style="text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-left: 5.4pt">Stock options granted</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(1,544,491</td><td style="text-align: left">)</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">(2,275,000</td><td style="text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-left: 5.4pt">Add back options cancelled before exercise</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">678,491</td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">375,000</td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-bottom: 1pt; padding-left: 5.4pt">Options cancelled by plan vote</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">—  </td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-bottom: 2.5pt; padding-left: 5.4pt">Remaining shares available for future grants</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">572,750</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">5,891,594</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
<p style="font: 11pt/115% Calibri, Helvetica, Sans-Serif; margin: 0 0 10pt"> </p>
<table cellpadding="0" cellspacing="0" style="width: 100%; font: 9pt Times New Roman, Times, Serif">
<tr style="vertical-align: bottom">
<td> </td><td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="text-align: right"> </td><td style="padding-bottom: 1pt"> </td>
<td colspan="3" style="text-align: right"> </td><td style="font-size: 10pt; font-weight: bold; padding-bottom: 1pt"> </td>
<td colspan="3" style="font-size: 10pt; font-weight: bold; text-align: right; border-bottom: Black 1pt solid">Not Pursuant to a Plan</td></tr>
<tr style="vertical-align: bottom">
<td style="text-align: justify">Total granted</td><td> </td>
<td colspan="3" style="text-align: right">1,544,491</td><td> </td>
<td colspan="3" style="text-align: right">2,275,000</td><td> </td>
<td colspan="3" style="text-align: right">3,100,000</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-left: 5.4pt">Less:  Restricted stock cancelled</td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td><td> </td>
<td style="text-align: left"> </td><td style="text-align: right">—  </td><td style="text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="width: 46%; text-align: justify; text-indent: 22.5pt; padding-left: 5.4pt">Options cancelled</td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right">(678,491</td><td style="width: 1%; text-align: left">)</td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right">(375,000</td><td style="width: 1%; text-align: left">)</td><td style="width: 5%"> </td>
<td style="width: 1%; text-align: left"> </td><td style="width: 11%; text-align: right">(1,383,334</td><td style="width: 1%; text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-bottom: 1pt; text-indent: 22.5pt; padding-left: 5.4pt">Options exercised</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(352,000</td><td style="padding-bottom: 1pt; text-align: left">) </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(130,000</td><td style="padding-bottom: 1pt; text-align: left">)</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">(666,666</td><td style="padding-bottom: 1pt; text-align: left">)</td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-bottom: 1pt; padding-left: 5.4pt">Net shares outstanding before restricted stock</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">514,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1,770,000</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">1,050,000</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204,255,255)">
<td style="text-align: justify; padding-bottom: 1pt; padding-left: 5.4pt">Net restricted stock issued net of cancellations</td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">161,250</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">2,208,406</td><td style="padding-bottom: 1pt; text-align: left"> </td><td style="padding-bottom: 1pt"> </td>
<td style="border-bottom: Black 1pt solid; text-align: left"> </td><td style="border-bottom: Black 1pt solid; text-align: right">284,844</td><td style="padding-bottom: 1pt; text-align: left"> </td></tr>
<tr style="vertical-align: bottom; background-color: White">
<td style="text-align: justify; padding-bottom: 2.5pt; padding-left: 5.4pt">Outstanding shares at March 31, 2012</td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">675,250</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">3,978,406</td><td style="padding-bottom: 2.5pt; text-align: left"> </td><td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: Black 2.5pt double; text-align: left"> </td><td style="border-bottom: Black 2.5pt double; text-align: right">1,334,844</td><td style="padding-bottom: 2.5pt; text-align: left"> </td></tr>
</table>
<p style="font: 11pt/115% Calibri, Helvetica, Sans-Serif; margin: 0 0 10pt"> </p>